PM Netanyahu accepted prospect of Palestinian state for first time in 14 June speech, conditioning acceptance on demilitarisation, recognition of Israel as Jewish state; insisted on “natural growth” for West Bank settlements, Jerusalem to remain undivided Israeli capital, rejection of return for Palestinian refugees. U.S. hailed as “step forward”, but continued to call for settlement freeze; Palestinian Authority (PA) officials rejected Netanyahu’s conditions. U.S. envoy Mitchell held talks with Israeli, Palestinian leaders 9-10 June. Policeman, 2 Hamas gunmen killed 4 June in PA arrest operation in Qalqilya. Fatah, Hamas leaders began 6th round of Cairo reconciliation talks 28 June, amid tension over continuing reciprocal arrest campaigns in Gaza, West Bank. Israel released Hamas speaker of PA parliament Abd al-Aziz Dweik 23 June. Israeli troops killed 1 at protest against West Bank barrier near Ramallah 1 June. 4 Palestinian gunmen killed in 8 June clash with Israeli troops, northern Gaza border. Several Israeli checkpoints near West Bank cities lifted during month; Israeli military 24 June stated plan to “limit” incursions in Bethlehem, Ramallah, Jericho, Qalqilya. Egypt opened Rafah border with Gaza to students, medical cases 27 June.

PM Netanyahu in Washington for first meeting with U.S. President Obama 18 May. Obama reiterated call for Palestinian statehood, need for Israel to curb West Bank settlements; Netanyahu avoided reference to two states, emphasising need for Palestinian concessions, threat posed by Iran. Netanyahu 24 May defended expansion of settlements for “natural growth”; firm U.S. opposition to any settlement expansion reiterated by Sec State Clinton 27 May, Obama 28 May. 5th round of HamasFatah reconciliation talks in Cairo ended 18 May without agreement. New Palestinian Authority (PA) govt under PM Fayyad sworn in 19 May. New govt includes several Fatah members despite criticism from Fatah factions; denounced by Hamas as illegal and undermining Palestinian dialogue. 6 killed in gun battle 31 May after PA security forces attempted arrest of Hamas militants in Qalqilya. Israeli settlers clashed with Palestinians near Bethlehem 3 May. Israeli soldier killed in Bir Zeit 7 May. Civilian, Hamas commander killed by Israeli army in Hebron, 7, 28 May. Israeli airstrikes hit Gaza tunnels 2, 19 May following mortar, rocket fire into Israel; 2 killed 2 May. 2 militants killed on Gaza border 22 May.

U.S. commitment to Palestinian state alongside Israel reiterated by envoy Mitchell on mid-Apr visit, by President Obama 21 Apr. PM Netanyahu told Mitchell Palestinian recognition of Israel as “Jewish state” needed for peace; later clarified not precondition for talks. FM Lieberman stated opposition to final status negotiations early month. New round of Cairo talks between Fatah and Hamas ended 28 Apr without agreement on unity govt; further talks for May. Palestinian demonstrator killed 17 Apr at protest against West Bank (WB) barrier. 2 Palestinians killed by Israeli settlers 2, 17 Apr after reportedly attacking southern WB settlements, killing teenage settler 2 Apr. Palestinians 7 Apr clashed with Israeli police in East Jerusalem over demolition of house of June 2008 attacker; Palestinian driver killed by police after car hit nearby roadblock. Armed Bedouin girl attacked police station southern Israel 4 Apr, killed by police. Fishing boat exploded off Gaza coast in suspected attempt to attack Israeli navy patrol 13 Apr. 2 gunmen killed by army at northern Gaza border 4 Apr.

Likud leader Netanyahu sworn in as PM 31 March at head of coalition govt with Labour, far right Yisrael Beiteinu, orthodox Jewish Shas parties; controversial right-winger Avigdor Lieberman appointed FM. Netanyahu pledged to negotiate with Palestinians, but avoided commitment to 2 states. U.S. Sec State Clinton 3-4 March met Israeli, Palestinian leaders, emphasised support for 2-state solution. Cairo talks on Palestinian national unity govt began 10 March; adjourned 19 March amid disagreements on commitment to PLO agreements with Israel, composition of govt. Hamas-Israel talks in Cairo on captured soldier Gilad Shalit ended 19 March without deal. Israel arrested 10 Hamas leaders including MPs in W Bank 19 March. Sporadic rocket fire from Gaza throughout month drew retaliatory strikes from Israel, killing 4 Islamic Jihad members 4-5 March; Hamas criticised rocket fire in 12 March statement. 2 militants killed in airstrike near Gaza-Israel border 31 March. Palestinian shot dead in Jerusalem 5 March after driving bulldozer into police car. 2 Israeli police killed 15 March near W Bank settlement. Car bomb defused in Haifa 21 March, claimed by previously unknown group. Far right Jewish march in Israeli Arab town Umm al-Fahm sparked clashes between heavy police presence and protesting locals.

Likud leader Benjamin Netanyahu asked to form govt by President Peres 20 Feb after securing support from far right Yisrael Beitenu party. Netanyahu expected to form coalition with right-wing parties after failure to reach agreement with centrist Kadima. In 10 Feb elections Likud won 27 seats, Kadima 28, Labour 4th behind Yisrael Beitenu. Gaza saw continuing sporadic rocket fire into Israel, Israeli air strikes in response. Hamas, Fatah agreed to work on forming Palestinian unity govt, release of detainees, at reconciliation meeting in Cairo 26 Feb. Outgoing Israeli PM Olmert’s call for release of captured soldier Gilad Shalit to precede Gaza ceasefire agreement endorsed by cabinet 18 Feb; Egypt and Hamas rejected link between release and ceasefire. Israeli authorities early-Feb earmarked West Bank land for expansion of Efrat settlement. Jerusalem municipality 24 Feb confirmed plan to demolish buildings housing up to 1,500 Palestinians.

Following massive damage in Israeli offensive in Gaza, unilateral ceasefires 18 Jan by Israel and Hamas, both claiming victory. Ground incursion commencing 3 Jan reached outlying areas of Gaza City; airstrikes commencing 27 Dec and shelling targeted weapons stores, tunnels for arms smuggling, rocket launching sites, Hamas members, including Interior Minister Siyam killed 15 Jan. Police stations, ministries, hospitals, schools and UNRWA compound also hit. Palestinian rockets from Gaza hit southern Israeli cities including Ashdod, Ashkelon, Sderot, Beersheba. Palestinian sources reported over 1,300 dead including many hundreds of civilians, over 5,000 injured, tens of thousands homeless; 13 Israelis killed including 3 civilians. Delegations from Hamas, Fatah, other Palestinian groups and Israel visited Cairo for Egypt-mediated talks before and after 18 Jan ceasefire. Following ceasefire, Israeli troops completed withdrawal 21 Jan; 27 Jan bomb attack killing 1 Israeli soldier led to renewed air strikes and incursion into Gaza near Khan Yunis, killing 1 civilian, followed by renewed rocket fire into Israel and further airstrikes 28- 29, 31 Jan. Cost of reconstruction estimated at almost $2bn. UNSG Ban 20 Jan called for investigation into bombing of UN compound. Numerous protests against Gaza offensive in West Bank cities; 1 protester killed by Israeli troops in Hebron 16 Jan. New U.S. Middle East envoy George Mitchell in talks with PA and Israeli leaders 29-30 Jan.

Israel launched massive air raid on Gaza 27 Dec and ground incursion 3 Jan, leaving over 500 Palestinians reported dead; Hamas rocket fire in response struck deep into Israel. Ongoing hostilities risk further escalation. Israeli assault followed intensified Palestinian rocket fire and increase in cross-border fighting, before and after 19 Dec expiration of six-month ceasefire. Many Hamas security personnel, some senior leaders, many civilians among dead. 4 Israelis killed by rocket attacks, 1 soldier in ground incursion. Egypt refused calls, including by Hizbollah, to open Rafah border, conditioning re-opening on Palestinian Authority (PA) control; some ambulances, wounded crossed. Israeli action drew mass protests across much of Muslim world, many Western countries. UN, EU, U.S. and Russia 30 Dec called for immediate ceasefire, but U.S. said Hamas to halt rocket fire first. Arab League 31 Dec demanded immediate end to Israeli military operations, blockade. UNSC debate 31 Dec ended without vote on draft resolution – meeting again 5 Jan. Israel 15 Dec released 224 mainly Fatah prisoners to West Bank. PA President Abbas 16 Dec called for resumption of Hamas- Fatah talks stalled by Nov Hamas boycott. Hardline Israeli settlers rioted in Hebron after Israeli police evicted 250 settlers from disputed building 4 Dec.

New round of Gaza violence threatened June ceasefire, due to expire 19 Dec. Spiraling violations followed 4 Nov Israeli incursion across Gaza border to destroy tunnel. Palestinian militias fired rockets into Israel, including strikes reaching Ashkelon. Further raids and clashes left over 12 militants dead; Israel said scores of rockets fired in month, 8 soldiers wounded 28 Nov. Israel and Hamas leaders expressed commitment to ceasefire, but traded blame. Israel closed all Gaza crossings, banned entry of foreign journalists. Blockade lifted briefly; UN officials again reported supply shortages, warned of humanitarian crisis. Cairo attempted to mediate resumption of ceasefire, despite Hamas refusal to attend 10 Nov meeting on recent Palestinian reconciliation proposal. New Kadima party leader, Israeli FM Livni, and Palestinian Authority (PA) President Abbas met Quartet representatives in Sharm el-Sheikh 9 Nov; pledged to continue Annapolis process. Israeli cabinet 30 Nov approved planned release of 250 Fatah prisoners as “goodwill gesture”. Israeli political party leaders continued campaigning ahead of Feb 2009 elections, with hardline Likud party, led by Netanyahu, ahead in polls. Outgoing PM Olmert 2 Nov announced measures against illegal settlements in West Bank, including enhanced law enforcement to curb settler violence; settlers and Palestinians clashed in Hebron 29 Nov.

Israeli elections set for 10 Feb 2009 as new Kadima party leader, FM Livni, failed to build coalition. PM Olmert in office until govt formed. President Peres met with Egyptian President Mubarak in Cairo 23 Oct; supported “spirit” of 2002 Arab League initiative. Riots and clashes between Arab and Jewish communities in coastal city Acre followed 8 Oct incident during Yom Kippur festival. Jewish settlers clashed with police, Palestinians in Hebron, amid continued attacks on Palestinian farmers. After weeks of talks with Palestinian factions, Egypt 20 Oct released draft proposal to end Hamas-Fatah rift including consensus govt, agreement on election timing and inclusion of Hamas in PLO – factions to discuss early Nov. In West Bank, Palestinian Authority (PA) increased arrests of Hamas personnel. President Abbas 21 Oct removed intelligence head Tawfiq Tirawi. PA deployed additional 550 security personnel in Hebron 25 Oct. In Ramallah Israeli forces 13-16 Oct killed 3 Palestinian youths accused of preparing firebombs. EU envoy Blair 12 Oct said Gaza banks near collapse. Israel closed Gaza crossings 22, 30 Oct following rocket attacks in violation of ceasefire.

FM Livni elected leader of ruling Kadima party 18 Sept, beating Shaul Mofaz by narrow margin. Following PM Olmert’s formal resignation 21 Sept, President Shimon Peres asked Livni to form govt – coalition talks continuing. Olmert to stay on as caretaker PM until govt formed, unless indicted in ongoing corruption probe. Palestinian Authority President Abbas at UN 26 Sept pledged to continue peace efforts but denounced Israeli settlement expansion. Hamas forces 15-16 Sept stormed Gaza City compound of criminal- and militant-linked Dughmush clan; at least 12 killed in fighting. Egypt 20 Sept opened Rafah crossing for students, pilgrims, medical cases. Explosion in Gaza-Egypt tunnel 24 Sept killed 5 Palestinians. Israeli settler attacks against Palestinians increasing: 13 Sept assault on villagers in West Bank denounced by Olmert as “pogrom”; 28 Sept shooting death under investigation. Report of Archbishop Desmond Tutu to UN Human Rights Council said 2006 Israeli shelling of Beit Hanoun in Gaza possibly war crime.