Abir Dandis, the mother of the two girls who were murdered in the Negev town of Al-Fura’a last week, couldn't find a police officer to listen to her warnings, neither in Arad nor in Ma’ale Adumim. Both police stations operate in areas where Israel wants to gather the Bedouin into permanent communities, against their will, in order to clear more land for Jewish communities. The dismissive treatment Dandis received shows how the Bedouin are considered simply to be lawbreakers by their very nature. But as a resident of the West Bank asking for help for her daughters, whose father was Israeli, Dandis faced the legal-bureaucratic maze created by the Oslo Accords.

The Palestinian police is not allowed to arrest Israeli civilians. It must hand suspects over to the Israel Police. The Palestinian police complain that in cases of Israelis suspected of committing crimes against Palestinian residents, the Israel Police tend not to investigate or prosecute them.

In addition, the town of Al-Azaria, where Dandis lives, is in Area B, under Palestinian civilian authority and Israeli security authority. According to the testimony of Palestinian residents, neither the IDF nor the Israel Police has any interest in internal Palestinian crime even though they have both the authority and the obligation to act in Area B.

The Palestinian police are limited in what it can do in Area B. Bringing in reinforcements or carrying weapons in emergency situations requires coordination with, and obtaining permission from, the IDF. If Dandis fears that the man who murdered her daughters is going to attack her as well, she has plenty of reason to fear that she will not receive appropriate, immediate police protection from either the Israelis or the Palestinians.

Dandis told Jack Khoury of Haaretz that the Ma’ale Adumim police referred her to the Palestinian Civil Affairs Coordination and Liaison Committee. Theoretically, this committee (which is subordinate to the Civil Affairs Ministry) is the logical place to go for such matters. Its parallel agency in Israel is the Civilian Liaison Committee (which is part of the Coordination and Liaison Administration - a part of the Civil Administration under the Coordinator of Government Activities in the Territories).

In their meetings, they are supposed to discuss matters such as settlers’ complaints about the high volume of the loudspeakers at mosques or Palestinians’ complaints about attacks by settlers. But the Palestinians see the Liaison Committee as a place to submit requests for permission to travel to Israel, and get the impression that its clerks do not have much power when faced with their Israeli counterparts. In any case, the coordination process is cumbersome and long.

The Palestinian police has a family welfare unit, and activists in Palestinian women’s organizations say that in recent years, its performance has improved. But, as stated, it has no authority over Israeli civilians and residents. Several non-governmental women’s groups also operate in the West Bank and in East Jerusalem, and women in similar situations approach them for help. The manager of one such organization told Haaretz that Dandis also fell victim to this confusing duplication of procedures and laws. Had Dandis approached her, she said, she would have referred her to Adalah, the Legal Center for Arab Minority Rights in Israel, which has expertise in navigating Israel’s laws and authorities.

John Kerry revealed his long-awaited plan for peace in the Middle East on Sunday, hinging on a $4bn (£2.6bn) investment in the Palestinian private sector.

The US secretary of state, speaking at the World Economic Forum on the Jordanian shores of the Dead Sea, told an audience including Israeli president Shimon Peres and Palestinian leader Mahmoud Abbas that an independent Palestinian economy is essential to achieving a sustainable peace.

Speaking under the conference banner "Breaking the Impasse", Kerry announced a plan that he promised would be "bigger, bolder and more ambitious" than anything since the Oslo accords, more than 20 years ago.

Tony Blair is to lead a group of private sector leaders in devising a plan to release the Palestinian economy from its dependence on international donors. The initial findings of Blair's taskforce, Kerry boasted, were "stunning", predicting a 50% increase in Palestinian GDP over three years, a cut of two-thirds in unemployment rates and almost double the Palestinian median wage. Currently, 40% of the Palestinian economy is supplied by donor aid.

Kerry assured Abbas that the economic plan was not a substitute for a political solution, which remains the US's "top priority".

Peres, who had taken the stage just minutes before, also issued a personal plea to his Palestinian counterpart to return to the negotiations.

"Let me say to my dear friend President Abbas," Peres said, "Should we really dance around the table? Lets sit together. You'll be surprised how much can be achieved in open, direct and organised meetings."

Thick locks hug the front gates of shuttered shops, now covered in graffiti and dust from lack of use. Only a handful of customers pass along the dimly lit road, sometimes stopping to check the ripeness of fruits and vegetables, or ordering meat in near-empty butcher shops.

“All the shops are closed. I’m the only one open. This used to be the best place,” said 64-year-old Mustafa Sunocret, selling vegetables out of a small storefront in the marketplace near his family’s home in the Muslim quarter of Jerusalem’s Old City.

Amidst the brightly coloured scarves, clothes and carpets, ceramic pottery and religious souvenirs filling the shops of Jerusalem’s historic Old City, Palestinian merchants are struggling to keep their businesses alive.

Faced with worsening health problems, Sunocret told IPS that he cannot work outside of the Old City, even as the cost of maintaining his shop, with high electricity, water and municipal tax bills to pay, weighs on him.

“I only have this shop,” he said. “There is no other work. I’m tired.”

Abed Ajloni, the owner of an antiques shop in the Old City, owes the Jerusalem municipality 250,000 Israeli shekels (68,300 U.S. dollars) in taxes. He told IPS that almost every day, the city’s tax collectors come into the Old City, accompanied by Israeli police and soldiers, to pressure people there to pay.

“It feels like they’re coming again to occupy the city, with the soldiers and police,” Ajloni, who has owned the same shop for 35 years, told IPS. “But where can I go? What can I do? All my life I was in this place.”

He added, “Does Jerusalem belong to us, or to someone else? Who’s responsible for Jerusalem? Who?”

Illegal annexation

Israel occupied East Jerusalem, including the Old City, in 1967. In July 1980, it passed a law stating that “Jerusalem, complete and united, is the capital of Israel”. But Israel’s annexation of East Jerusalem and subsequent application of Israeli laws over the entire city remain unrecognised by the international community.

Under international law, East Jerusalem is considered occupied territory – along with the West Bank, Gaza Strip and Syrian Golan Heights – and Palestinian residents of the city are protected under the Fourth Geneva Convention.

Jerusalem has historically been the economic, political and cultural centre of life for the entire Palestinian population. But after decades languishing under destructive Israeli policies meant to isolate the city from the rest of the Occupied Territories and a lack of municipal services and investment, East Jerusalem has slipped into a state of poverty and neglect.

“After some 45 years of occupation, Arab Jerusalemites suffer from political and cultural schizophrenia, simultaneously connected with and isolated from their two hinterlands: Ramallah and the West Bank to their east, West Jerusalem and Israel to the west,” the International Crisis Group recently wrote.

Israeli restrictions on planning and building, home demolitions, lack of investment in education and jobs, construction of an eight-foot-high separation barrier between and around Palestinian neighbourhoods and the creation of a permit system to enter Jerusalem have all contributed to the city’s isolation.

Formal Palestinian political groups have also been banned from the city, and between 2001-2009, Israel closed an estimated 26 organisations, including the former Palestinian Liberation Organisation headquarters in Jerusalem, the Orient House and the Jerusalem Chamber of Commerce.

Extreme poverty

Israel’s policies have also led to higher prices for basic goods and services and forced many Palestinian business owners to close shop and move to Ramallah or other Palestinian neighbourhoods on the other side of the wall. Many Palestinian Jerusalemites also prefer to do their shopping in the West Bank, or in West Jerusalem, where prices are lower.

While Palestinians constitute 39 percent of the city’s population today, almost 80 percent of East Jerusalem residents, including 85 percent of children, live below the poverty line.

“How could you develop [an] economy if you don’t control your resources? How could you develop [an] economy if you don’t have any control of your borders?” said Zakaria Odeh, director of the Civic Coalition for Palestinian Rights in Jerusalem, of “this kind of fragmentation, checkpoints, closure”.

“Without freedom of movement of goods and human beings, how could you develop an economy?” he asked.

“You can’t talk about independent economy in Jerusalem or the West Bank or in all of Palestine without a political solution. We don’t have a Palestinian economy; we have economic activities. That’s all we have,” Odeh told IPS.

Israel’s separation barrier alone, according to a new report by the United Nations Conference on Trade and Development (UNCTD), has caused a direct loss of over one billion dollars to Palestinians in Jerusalem, and continues to incur 200 million dollars per year in lost opportunities.

Israel’s severing and control over the Jerusalem-Jericho road – the historical trade route that connected Jerusalem to the rest of the West Bank and Middle East – has also contributed to the city’s economic downturn.

Separation of Jerusalem from West Bank

Before the First Intifada (Arabic for “uprising”) began in the late 1980s, East Jerusalem contributed approximately 14 to 15 percent of the gross domestic product (GDP) in the Occupied Palestinian territories (OPT). By 2000, that number had dropped to less than eight percent; in 2010, the East Jerusalem economy, compared to the rest of the OPT, was estimated at only seven percent.

“Economic separation resulted in the contraction in the relative size of the East Jerusalem economy, its detachment from the remaining OPT and the gradual redirection of East Jerusalem employment towards the Israeli labour market,” the U.N. report found.

Decades ago, Israel adopted a policy to maintain a so-called “demographic balance” in Jerusalem and attempt to limit Palestinian residents of the city to 26.5 percent or less of the total population.

To maintain this composition, Israel built numerous Jewish-Israeli settlements inside and in a ring around Jerusalem and changed the municipal boundaries to encompass Jewish neighbourhoods while excluding Palestinian ones.

It is now estimated that 90,000 Palestinians holding Jerusalem residency rights live on the other side of the separation barrier and must cross through Israeli checkpoints in order to reach Jerusalem for school, medical treatment, work, and other services.

“Israel is using all kinds of tools to push the Palestinians to leave; sometimes they are visible, and sometimes invisible tools,” explained Ziad al-Hammouri, director of the Jerusalem Centre for Social and Economic Rights (JCSER).

Al-Hammouri told IPS that at least 25 percent of the 1,000 Palestinian shops in the Old City were closed in recent years as a result of high municipal taxes and a lack of customers. “Taxation is an invisible tool…as dangerous as revoking ID cards and demolishing houses,” he said. “Israel will use this as pressure and as a tool in the future to confiscate these shops and properties.”

A seven-minute ride from Talansky, a minute's walk from Obama, the murderous tractor driver who launched his attack on Tuesday afternoon in central Jerusalem provided a reminder from real life. The Israeli-Palestinian conflict is not going anywhere in the near future. The day after the terrorist attack, the newspapers gave prominence to what was said by Yuval Diskin, the head of the Shin Bet security service, at a briefing he gave to the Knesset's Foreign Affairs and Defense Committee some two hours before the bulldozer attack. Diskin's forecast about there being copycats of the first "tractor terrorist," like his fierce criticism of the lack of law-enforcement and deterrence in East Jerusalem, were viewed as a prophecy that fulfilled itself at lightning speed. The small but well-oiled media section of the Shin Bet succeeded in presenting its performance, which at the bottom line was a failure to prevent a terror attack, as a near success.

Unlike his predecessor, Avi Dichter, Diskin appears very sparingly at meetings or forums in which his remarks can reach the general public. His remarks to the Knesset members therefore present a rare opportunity to understand the head of the service's worldview. And the world according to Diskin is far from a friendly one: Fatah is weak, Hamas is gaining strength, Israel's deterrent powers are at a low ebb. More than a month after the declaration of the cease-fire in the Gaza Strip, Diskin admits that the tahadiyeh is stable. All those involved have an interest in its continuing, he says, and Hamas' influence on the other factions in the Strip is very great. Hamas sought the lull mainly because it was under pressure on account of the distress of the Palestinian public.

The sanctions that Israel imposed on the delivery of gasoline were a salient example. The residents of Gaza stopped driving their cars and the fact that it was only Hamas men who had enough gas to enable them to continue driving around, for the first time made them look corrupt. As an ideological and social movement, Hamas is considered to be in critical need of public support. It is also interested now in consolidating its power base in the Strip and in increasing its military strength. It has no interest in an immediate military confrontation with Israel at this point.

In agreeing to the cease-fire, Diskin believes, Israel extended a lifeline to Hamas. "We are not attacking them and we have lifted the blockade, while they have not taken upon themselves a commitment to stop their arms buildup. From the point of view of Hamas, it is the winner in the conflict, as the side that managed to hold its ground during the Israeli blockade. The lull in fighting is depicted as an impressive achievement for it." For its part, Israel is getting a temporary calm but, he says, "this is in fact an illusion. In our assessment, the rocket firing will start again at some point in the future."

In general, Diskin says, "our situation is extremely problematic in the struggle against radical Islam." He mentions a series of events in the past three years: the withdrawal from the Gaza Strip, Hamas' gaining of control of the government in Gaza, the Second Lebanon War, and now the cease-fire. "The events of the past three years have been a real blow to Israel's deterrent ability. Since Hamas came to power, the level of Palestinian daring against us has risen. That is the result of the erosion of our status."

Let us assume, Diskin continues, that Israel manages to arrive at an agreement with Palestinian President Mahmoud Abbas (Abu Mazen). We will have to make progress with the peace process while we have one leg stuck in the Gaza Strip and the other in the West Bank. The PA will not fight against Hamas. Hamas is stronger than Fatah, and if a joint "government of experts" is set up, its status will increase even more. Had Israel not arrested, after Gilad Shalit was kidnapped, Hamas' parliament members and ministers in the West Bank, Fatah would no longer be in charge of the PA in the West Bank.

Hamas has no intention of becoming more flexible about long-term issues vis-a-vis Israel, the Shin Bet head believes. Any flexibility it shows will be tactical. "For them the entire area of the Land of Israel is waqf [holy Muslim] land. In the future, they want to set up an Islamic caliphate here. From their point of view, it is a zero-sum game - them or us. A religious movement doesn't change its ideology."

Diskin expresses support for a deal for the release of Shalit, but not at any price. "We have to get Gilad Shalit back but not at the cost of killing dozens of innocent people. I am in favor of a deal, but a sane deal." After any agreement, Israel will have to reexamine very thoroughly the rules by which it exchanges prisoners of war. He opposes freeing "Young" Fatah leader Marwan Barghouti from prison, "but if the government decides to release him, it is best that this be done as a gesture to Abu Mazen rather than as part of a deal with Hamas." Unlike others, the Shin Bet head does not predict a great future for Barghouti outside the prison walls. "After the euphoria and the celebration [among Palestinians] over his release, we do not believe that Barghouti will play a crucial role in the arena."

In view of the great difficulty of fighting terror born and bred in East Jerusalem, it is not just the Shin Bet head who supports the idea of destroying terrorists' homes. The prime minister and defense minister are also in favor. It sounds simpler and more convincing than the alternatives - increasing the surveillance of a population of some 200,000, carrying out security checks of (for example) hundreds of Palestinian bulldozer drivers, and restricting freedom of movement among East Jerusalem residents bearing blue Israeli identity cards.

Major general Miki Levy, the (successful) commander of the Jerusalem District police when the terrorist bombings of the second intifada were at their height, explained this week that it was the razing of houses that saved Jerusalem. In 2002, he said in an interview with Army Radio, we proposed destroying the homes of members of the so-called Silwan unit of Hamas, which was responsible for the murder of dozens of Israelis. The political echelons wavered, but finally they accepted the point of view of the police and the Shin Bet. "Since then, we have had six years of quiet, until now."

The facts are somewhat different. In the year and a half following the destruction of the homes of the Silwan terrorists, in January 2003, there were another seven suicide bombings in Jerusalem, in which 75 Israelis were killed. Only then was a relative calm established, which held for three and a half years. Terror attacks in Jerusalem were halted thanks to the tremendous efforts made by the Shin Bet and the Israel Defense Forces, which managed to almost totally uproot the murderous terror networks of Hamas and the Islamic Jihad in Hebron, Bethlehem and Ramallah. It is these networks that sent most of the suicide bombers to Jerusalem, where they were assisted by local Arabs, who let them sleep over there and then transported them to the scene of the crime. They were brought under control only as a result of innumerable nighttime arrests and long hours of interrogation by the Shin Bet. The establishment of the separation fence, which made it more difficult (in some parts) to reach Jerusalem from the West Bank played a part too.

In the present round, the East Jerusalemites are the spearhead, the executors themselves. It is not at all clear that there was an organization behind the past six month's three suicide attacks in central Jerusalem. All the same, the closeness of the past three attacks now begins to seem like more than a mere statistical coincidence. One of the directions that will have to be checked is whether the three terrorists - the attacker at the Mercaz Harav yeshiva and the two bulldozer drivers - knew one another.Ibrahim Hamad, the head of the Silwan unit and the commander of the armed wing of Hamas in Ramallah who was arrested at the beginning of 2006, was a great believer in sleeper cells. Who knows what he left behind him when he was arrested?

Will destroying terrorists' homes again increase Israel's deterrent powers, if only in East Jerusalem? It is difficult to prove that empirically. Shin Bet and army officers who are asked for their opinion on this controversial issue always point to events that occurred some years ago, when Palestinian fathers reported their sons' intentions to the authorities for fear that the army would destroy the family's home as a punishment for the son's suicide bombing. But here too there are no more than 20 documented cases, and the question is always raised whether the destruction of a house is not the opening shot for the career of yet another terrorist.

Major General Udi Shani, who headed the committee that at the beginning of 2005 recommended to then chief of staff Moshe Ya'alon ceasing the practice of destroying the homes of terrorists, enlisted the help of writers and academic experts in preparing his report. The Shani committee stated that the damage caused by knocking down houses was greater than the value yielded by the practice, and that it had not been proven that it indeed deterred terrorists. So long as the trend is that terror is being thwarted, Shani said at that time, it is better to avoid destroying houses. If we find that we are in the midst of a new wave of suicide bombings, it is always possible to reconsider.

Ya'alon accepted the conclusions, even if they did not please him. Diskin thinks differently, but he has not yet produced decisive arguments in support of his stand.

Lebanon, too, is now a central concern for the top security echelons. There are officers in the General Staff who recommend putting an end to restraint and sending "military signals" to the adversary, especially against the backdrop of reports in the Arab media about Hebollah setting up advanced anti-aircraft batteries in the Lebanese mountains. The head of Military Intelligence, Major General Amos Yadlin, said at the cabinet meeting this week that, with the completion of the prisoner-swap deal, Hezbollah could be expected to try and carry out an attack along the northern border as early as this summer. Yadlin explained that from the organization's point of view, there are still some "open files" that could constitute a pretext for an attack: the assassination last February of its leader, Imad Mughniyeh, and the fate of the Shaba Farms and the village of Maghar. In the last General Staff exercise, which took place in May, as at the meetings of the General Staff, there were profound professional arguments - does Israel have a large enough order of battle, in case of need, to conduct an attack on two fronts, the Syrian and the Lebanese? To what depth would a maneuvering force have to penetrate in order to achieve a decisive win over the enemy? Does the IDF have sufficient firepower at its disposal in view of the missions it might have to face in the North? (Major General Moshe Ivri-Sukenik, who was head of the Northern Corps until the beginning of the year, believed that the answer was negative, and expressed vehement criticism of the situation). Following the war in Lebanon, the accepted wisdom among IDF officers and academic experts was that one of the worst mistakes in that conflict was the decision to hold back the entry of ground forces into Lebanon and the presumption that it was possible to solve the problem of the Katyushas by more and more aerial bombing. Chief of Staff Gabi Ashkenazi hints that with him, things would be handled completely differently. And indeed, analysts believe that Ashkenazi, unlike his predecessor, Dan Halutz, has a thorough understanding of ground warfare and therefore would not hesitate to send forces deep into the field. However, when the question of what should have been is addressed to a number of senior officers, one hears contradictory responses. Some speak about flanking and encircling South Lebanon (in the spirit of the plan proposed by cabinet minister Shaul Mofaz toward the end of the war, a plan that the government refrained from approving). Others believe that there is no way to avoid a systematic hunt, house after house, and cell after cell. And there are some who return to the air force option, even though this approach failed in the war.

One senior officer says that it is clear that in the next round, ground forces will be employed "so as to take a maximum number of civilians out of the range of the Katyushas," but that such a move would not be the way to win the battle. "We must not discount the short-range rockets but we must also not exaggerate. A great deal depends on how well we know how to protect ourselves and on responsible behavior on the home front. In the end, the real result will depend on something else - on our ability to deter the other side and to create destruction there on a scope that will force them to stop." Another senior officer, from the field corps, touches on a sensitive spot: "It is easy to say that next time we'll send in the ground forces," he says. "What is not mentioned is the price. A government that decides on a move like that has to know that it will entail the loss of many soldiers' lives. Even after what we experienced in Lebanon, I can't see a government in Israel today making a decision of that kind without hesitating over the matter for a few days."

A Gulf newspaper reported Monday that Israel is willing to include jailed Fatah leader Marwan Barghouti in a list of 300 Palestinian prisoners to be freed in exchange for abducted Israeli soldier Gilad Shalit.

Shalit was seized in a cross-border raid in June 2006 and has been held in captivity in the Gaza Strip ever since. Unlike the soldiers who were snatched several weeks later by Hezbollah, Ehud Goldwasser and Eldad Regev, several signs of life from Shalit have been released. Barghouti is serving five life sentences in Israel for his role in a series of deadly terrorist attacks during the second intifada.

The newspaper, Al-Bayan which is published in the United Arab Emirates, also said that the list would also include senior Hamas officials Hassan Salame Abdullah Barghouti and Ibrahim Hamad. But, the report says, Israel will not free the leader of the Popular Front for the Liberation of Palestine, Ahmed Sadat. According to Al-Bayan, the talks on the exchange to secure Shalit's release have seen significant progress, but Egyptian officials fear that agents in the region will try to scupper the deal.

Also Monday, Miki Goldwasser, the mother of Ehud Goldwasser whose body was returned by Hezbollah in a prisoner swap last week, said Monday that she sees herself as a soldier fighting for Shalit.

On Monday morning, the Goldwasser family was visited by Military Intelligence chief Major General Amos Yadlin, Prime Minister's Bureau-appointed hostage negotiator Ofer Dekel, Deputy Defense Minister Matan Vilnai and Haim Avraham, the father of Benny Avraham who was kidnapped by Hezbollah in 2001.

Meanwhile, former United States President Jimmy Carter is also trying to achieve a breakthrough in negotiations for Shalit's release, and has urged Israel to release Hamas politicians in efforts to expedite the deal.

A senior adviser to Carter, Robert Pastor, visited Israel last week, as part of a regional tour that included visits to the Gaza Strip, Damascus and Cairo.

Pastor met with Shas leader Eli Yishai, and said that Carter would like to arrange a tripartite meeting with a senior Hamas figure. An Israeli source said that Pastor presented Yishai with the initiative to release Hamas politicians to expedite the deal.

Under the initiative, Israel would release several dozen prisoners a confidence-building measure, including Hamas parliamentarians and ministers arrested after Shalit's abduction in June 2006. In return, Shalit would be brought to Egypt, where his family would be able to visit him. After this stage, negotiations for the release of more Palestinian prisoners and Shalit's return home would continue.

On Sunday, Minister who participated in cabinet deliberations with Prime Minister Ehud Olmert said that Israel will have to show greater flexibility in its negotiations with Hamas in efforts to secure Shalit's release.

Meanwhile, a Hamas delegation from the Gaza Strip is expected to visit Cairo later this week in order to discuss an Egyptian proposal to renew the indirect negotiations between the two sides.

If there is progress in the talks between senior Egyptian intelligence officials and Hamas representatives, Israeli negotiator Ofer Dekel will also travel to Cairo for talks next week.

Olmert is likely to resume cabinet discussions on the criteria for which Palestinian prisoners can be released in exchange for Shalit. A similar discussion took place six months ago, headed by Vice Premier Haim Ramon.

Security and political sources said Sunday that the restrictions on the prisoner criteria must be relaxed in order to achieve progress on the talks. To date, Israel has agreed to release 71 of the hundreds of people proposed by Hamas.

Ministers involved say they have no illusions of reaching an agreement unless dozens of prisoners sentenced to life are released - including those who were involved in serious terrorist operations.

Israel is also hoping that Egypt will increase its pressure on Hamas to be more flexible.

Defense Minister Ehud Barak believes that it is important to utilize the tahadiyeh (cease-fire) in order to push through a deal for Shalit.

During discussions Sunday, Barak said he believed a gag order might be necessary, because Hamas may try to use the Israeli media in its bargaining.

This comes following the recent negotiations for reservists Ehud Goldwasser and Eldad Regev, Barak explained, as well as "loose talk" from ministers who stated that Hamas will up its demands in exchange for Shalit.

"It is essential to impose a heavy curtain of censorship in order to bring Gilad [Shalit] home," Barak said yesterday. "We must not conduct this struggle with our cards open - it gives a significant and unjustified advantage to the other side."

A senior Israel Defense Forces military intelligence officer told Tuesday's cabinet session that Hamas both fears a broad IDF operation in the Gaza Strip, and is expediting its preparations for such an incursion.

Brigadier General Yossi Baidatz, the head of the research division of Military Intelligence, added that the militant Palestinian group was currently most interested in achieving calm in the Gaza Strip, which it controls, but was simultaneously continuing to smuggle weapons from Egypt.

Baidatz was speaking at a session attended by Prime Minister Ehud Olmert, Defense Minister Ehud Barak, Foreign Minister Tzipi Livni and top military brass, which focused on the issue of whether to pursue a truce with Gaza's Hamas rulers, or embark on a broad military operation against militants in the Strip.The meeting came amid mortar shell and Qassam rocket attacks perpetrated by Gaza militants on the Western Negev.

During the meeting, held in Jerusalem, the officials were to consider Hamas' response to Israel's cease-fire proposal. Israel holds Hamas responsible for almost daily rocket and mortar attacks by Palestinian gunmen on southern Israel from Gaza.

To date, the Islamic group has agreed to a cease-fire with Israel but has refused to include in the deal the return of abducted IDF soldier Gilad Shalit.

Israeli sources said Monday it was possible that Hamas' decision to hand Israel a letter apparently written by Shalit was an expression of "goodwill," in an effort to show that the group was willing to take some steps toward a truce deal.

In recent weeks Israel has demanded that any agreement for calm in the Gaza Strip, and the lifting of its blockade on the Strip, would also include progress on the question of Shalit, who has been held in Gaza since his abduction in June 2006.

Hamas has also rejected Israel's demand it cease smuggling weapons into Gaza. Egypt has pledged to fight the arms smuggling, but Olmert and Livni have expressed their disapproval of reaching an agreement that would leave Hamas free to continue amassing a weapons stockpile.

During the cabinet meeting, Olmert also hinted his displeasure at Transportation Minister Shaul Mofaz's comments that an attack on Iran appeared 'unavoidable.'. Olmert said in the meeting that he recommends that ministers do not comment to the media about sensitive security issues.

In a second meeting to be held on Wednesday, the entire security cabinet will convene to discuss the situation in Gaza, a discussion that is deemed as crucial to Israel's deliberations over whether to reach a cease-fire or launch an operation in Gaza.

A broad campaign carries the the risk of high Israeli military and Palestinian civilian casualties. But with four Israelis killed so far this year, Israel's leadership is under domestic pressure to do something about the assaults.

Hamas is interested at this stage in maintaining the lull in fighting against the Israel Defense Forces along the Gaza Strip border, defense officials suggested Monday.

Likewise, Egypt is keeping up heavy pressure on Hamas leaders in Gaza not to deviate from the understandings reached with it regarding the suspension of fighting.

Defense Minister Ehud Barak said Monday that if the rocket fire from the Strip and arms smuggling cease, "The door to another reality will open," but he added that "we are still far" from that reality.

Barak added that Israel will not negotiate with Hamas, "except for indirect talks regarding kidnapped soldier Gilad Shalit."

Under the agreement Cairo reached with Hamas three weeks ago, Hamas would stop launching rockets at Israel for a week-long trial period. Israel announced that quiet on the Palestinian side would result in corresponding quiet from Israel. So far, both sides are keeping their promise to Egypt, even though Islamic Jihad occasionally launches rockets into Israel.

On Sunday, Egypt released 33 Hamas operatives who were arrested in Sinai after the Rafah border fence was breached in late January. This is a significant gesture by Cairo, evidently intended to "bolster" the lull. IDF sources said Egypt seems to be making an especially intense effort to preserve the lull.

Four mortar shells fired from Gaza struck the western Negev causing no casualties or damage on Tuesday.

IDF sources confirmed that Hamas is also refraining at this time from supplying rockets to other Palestinian factions.

Security sources told Haaretz that the lull should not be viewed as an agreement between Israel and Hamas. They say Egypt was motivated to reach understandings with Hamas for interests of its own and out of fear the violence would spill over into its territory. Israel merely "hitched a ride on an arrangement already reached between Hamas and Cairo," the sources said.

However, senior military commanders indicated this week that the lull is expected to be temporary, because Egypt will have a hard time securing an overall agreement due to the massive distance between the sides.

The head of the Defense Ministry's Political Department, Amos Gilad, who is in charge of the talks with Cairo, has been instructed to take a tough negotiating line with Egypt. In an interview Monday on Army Radio, Gilad made an evident effort to deny any connection between the talks he is conducting and Egypt's talks with Hamas.

"There are no negotiations here whatsoever," Gilad said.

He described the purpose of his mission as "bringing about a cessation of rocket fire and a halt to the smuggling of material."

On Monday, there was an increase in the number of incidents along the Gaza Strip border. At least one rocket and several mortar shells were fired at the western Negev, and IDF troops were fired on near the perimeter fence. There were no casualties.