Diplomatic preparations intensified for Annapolis peace conference due “before end of year”, but with widespread scepticism any breakthrough achievable. U.S. Sec. State Condoleezza Rice pushed for regional support: Palestinian Authority to attend only if key issues discussed, including final status of Jerusalem, borders of future state and right of return for refugees. Israeli PM Olmert appointed FM Tzipi Livni as chief negotiator. Conflict along Gaza-Israel border saw 2 Israeli soldiers and up to 6 Hamas militants killed, while Israel’s troop presence in West Bank increased. Army’s September order expropriating land within Jerusalem settlement project revived Palestinian fears peace process could serve as smokescreen for land grab. Israeli defence minister Ehud Barak’s authorisation of cutting power to Gaza in response to continued missile fire blocked by attorney general 30 October, though reductions in fuel deliveries started. Deadlock within Palestinian political system continued. Hamas consolidated grip on Gaza Strip, while in West Bank security forces controlled by presidency and Fayyad government continued campaign to pressure Islamists. Hamas attempts to exert authority over Fatah-aligned clans in Gaza, and other factional clashes from 18 October, killed 7.

Israel continued siege and isolation of Gaza, prompting increased rocket fire into Israel including attack 11 September wounding over 60 soldiers. Israel declared Gaza “hostile entity” 19 September, threatened to sever electricity and fuel. Israeli operations left 1 soldier, 5 Palestinians dead 21 September: 40 Palestinians arrested including senior Hamas commander. 12 Palestinians killed in Israeli operations in Gaza strip 26-28 September. Defence Minister Barak stated Israel increasingly close to major military operation in Gaza Strip. Quartet met at UN 23 September in continued lead-up to U.S.-sponsored meeting scheduled November: “declaration of principles” to be agreed. U.S. said would invite key Arab nations, including Syria: Israel said would attend despite recent Israeli airstrike (see Syria). Israel released some 90 Palestinian prisoners in “gesture of goodwill” to Palestinian President Mahmoud Abbas 1 October.

Since June takeover of Gaza by Hamas, emergency government of President Mahmoud Abbas administers West Bank and Hamas Gaza. To support Abbas, Israel released some frozen tax funds and 256 non-Hamas Palestinian prisoners. Israeli FM Tzipi Livni met new Palestinian PM Salam Fayyad 9 July. Israeli army released former Palestinian education minister Nasser al-Shaer 18 July on promise to renounce Hamas membership. Mohammed Dahlan announced resignation as national security adviser 25 July. Israeli forces continued operations in Gaza: including on 5 July killing 11; near Bureij refugee camp, with 1 soldier killed in ambush 12 July; and on 22 July killing 4. U.S. President Bush 17 July called for international meeting to restart peace talks: announced $190m aid package for Abbas government. Israel confirmed 29 July U.S. planning 25% increase in defence aid. Former UK PM Tony Blair made first visit to region as Quartet envoy 23-24 July. Egyptian and Jordanian FMs visited Israel 25 July to present renewed Arab League peace plan. Russian President Vladimir Putin expressed support for Abbas in Moscow talks 31 July. Former Israeli PM Shimon Peres inaugurated president 15 July. BBC journalist Alan Johnston freed 4 July after 16 weeks imprisonment in Gaza by Islamist clan self-styled “Army of Islam”.

Internal Palestinian conflict split Hamas-ruled Gaza from Fatah-controlled West Bank. Intense fighting claimed over 100 before 14 June complete Hamas takeover of Gaza. President Mahmoud Abbas branded Hamas “murderous terrorists”, sacked Hamas-led government and replaced it with emergency cabinet led by PM Salam Fayyad 17 June. U.S. President Bush and Israeli PM Ehud Olmert agreed to support Abbas government; funding resumed as Quartet (U.S., EU, UN, Russia) lifted aid embargo and Israeli cabinet agreed 24 June to release frozen tax funds withheld since Hamas’ January 2006 election victory. Fatah gunmen, primarily from Al-Aqsa Martyrs’ Brigade, went on reprisal rampage in West Bank. Olmert announced plans to release 250 jailed Fatah members at 25 June Egypt summit, attended by Abbas and leaders of Egypt and Jordan. Israel launched Gaza attacks from 20 June, killing over 30. Israeli troops also raided Nablus and Jenin refugee camp in West Bank, clashing with Fatah and Islamic Jihad militants. Former PM Shimon Peres elected Israeli president after rivals withdrew. Ehud Barak won 51.2% of second round vote in Labour party leadership; approved defence minister, replacing Amir Peretz, 13 June. Former UK PM Tony Blair appointed envoy for Middle East Quartet 27 June.

Dramatic surge in Israeli Palestinian and internal Palestinian conflict, with direct participation of Hamas in both. November 2006 Gaza ceasefire in ruins with air strikes and rocket attacks escalating after 15 May Israeli decision to respond to continued attacks from Gaza. Sustained attacks on Sderot and nearby towns on Gaza border killed 2 Israelis 21/27 May. More than 40 Palestinians killed by Israeli airstrikes in month. Israeli PM Olmert stated Israel will no longer “coordinate our actions with those of Hamas”, suggesting Israeli attacks to continue even if rocket attacks stop. Palestinian Education Minister Nasser al-Shaer and cabinet member Wasfi Kabha among 33 Hamas officials arrested by Israeli forces in West Bank. Olmert resisted military pressure to commit ground forces in Gaza. FM Tzipi Livni joined calls for Olmert resignation 2 May. Coalition government in doubt as 28 May Labour party primaries led to defeat of leader Amir Peretz; 2nd round vote due 12 June between former PM Ehud Barak and former intelligence chief Ami Ayalon – both reportedly hold position that Olmert must resign for Labour to remain in coalition. Factional clashes in Gaza killed 50 in month. Growing chaos created new openings for radical salafists with agenda opposed to that of both Fatah and Hamas. Egyptian-mediated Fatah-Hamas talks began end May. Video of captive BBC journalist Alan Johnston released 1 June by Army of Islam.

5-month-old Gaza ceasefire at risk as Hamas militants fired rockets and mortar shells into Israel 24 April. Attacks came in response to 9 killed by Israeli army in West Bank raids 21/22 April. Israeli troops killed 3 Hamas fighters on Gaza-Israel border 28 April. Insecurity in occupied territories continued – highlighted by ongoing Gaza kidnapping of BBC journalist Alan Johnston – despite Palestinian Authority efforts. President Abbas ordered formation of national security council 15 April. PM Haniya’s security plan approved by cabinet 14 April. Israel welcomed elements of renewed 2002 Saudi peace initiative, rejected others and invited direct talks with Arab states. Outlines of possible Hamas- Israel prisoner swap emerged but progress difficult to judge. Israeli PM Ehud Olmert and President Abbas met in Jerusalem 15 April, first of biweekly meetings agreed to during March visit of U.S. Sec. State Condoleezza Rice. Interim report by Israeli commission criticised Olmert’s handling of Lebanon war 30 April.

Palestinian national unity government took office 17 March. Hopes raised by Arab League summit 28-30 March decision to renew commitment to 2002 Saudi initiative – the one diplomatic opening in which Israel has expressed interest though refused to endorse. Kidnappings and assassinations in Gaza underlined challenges ahead, while Hamas rejected President Abbas’s 18 March appointment of Muhammad Dahlan as National Security Advisor. Israel extended ban on political contacts with Palestinian Authority (PA) and restricted engagement to discussions of security and humanitarian issues, despite ministerial appeals to continue final status talks with Abbas and U.S. Sec. State Condoleezza Rice. Israel’s formal downgrading of talks with Abbas marked divergence with Washington, which declared itself open to contacts with non- Hamas PA ministers.

Assassinations and clashes between Hamas and Fatah reached unprecedented levels late January, with over 30 dead. Ceasefire announced 30 January but overshadowed by continued failure to reach political agreement, post-ceasefire killing of Hamas commander, and sporadic attacks on Hamas and Fatah officials. Key meeting between Palestinian Authority President Mahmoud Abbas and Hamas political chief Khaled Meshaal in Damascus 21 January failed to produce agreement. Israel transferred $100m in Palestinian tax revenues to Abbas, representing one sixth of amount withheld since Hamas elected in January 2006, after U.S. Sec. State Rice held meetings with Palestinian and Israeli leaders and announced plans to host summit with Abbas and Israeli PM Olmert early February. Suicide bomber killed 3 in Eilat 29 January in first such attack in 9 months; Islamic Jihad, al-Aqsa Martyrs Brigade and previously unknown group – Army of Believers – claimed responsibility. Israel stated it would pursue militants while maintaining Gaza ceasefire. Israel’s military chief Lt. Gen. Dan Halutz resigned over conflict with Hizbollah, to be replaced by Maj. Gen. Gabi Ashkenazi.

Amid extreme tension between Hamas and Fatah over formation of unity government, Palestinian President Mahmoud Abbas attempted to break deadlock with 17 December call for early elections. Hamas declared any new election would be “coup” attempt and unconstitutional. Ensuing clashes, seen as worst in decade, between armed factions of Hamas and Fatah left 17 dead before 19 December ceasefire. Assassinations and killings in Gaza included shooting deaths of 3 young sons of Gaza intelligence chief linked to Fatah and judge linked to Hamas. Israel announced plans for first new West Bank settlement since 1992 at Maskiot, northern Jordan valley; met with international criticism and came despite positive meeting between Olmert and Abbas 23 December where Olmert agreed to release $100m of Palestinian funds. Olmert ordered “pinpoint” action against rockets launched from Gaza but insisted 26 November truce still holds. Israeli operations continued in West Bank: 2 Islamic Jihad militants killed 20 December; girl mistakenly killed in Tulkarm 19 December.

Fragile Gaza ceasefire took hold 26 November, raising hopes for end to 4-month period of intense violence and destruction in Gaza Strip. PM Olmert offered economic incentives and possibility of negotiations and prisoner release in return for end to Palestinian violence, release of Cpl. Shalit and formation of internationally acceptable unity government. Month saw continued Israeli incursions, assassinations, bombardments and arrests, particularly in Gaza, and continuation of Palestinian rocket attacks on southern Israeli towns. Hamas and Fatah agreed to formula for unity government led by Hamas-nominated and President Abbas-approved PM Muhammad Shubair – but Abbas announced negotiations again stalled 29 November. Israeli operations in Beit Hanoun killed dozens of militants and civilians including 8 November shelling: killing 19 civilians. Hamas claimed responsibility for 23 November Gaza suicide blast by grandmother; Islamic Jihad for 6 November female suicide bomber in Beit Hanoun. Raids continued in West Bank: non-violent civilian protest campaign to protect militant homes resulted in temporary suspension of Israeli aerial demolition campaign. New peace initiative from Spain, backed by Italy and France, and including international peacekeepers in Gaza, rejected by Israel, but Olmert later recognised as positive parts of 2002 Saudi initiative. Israeli relations with UNIFIL (and Europe) deteriorated as IDF warplanes “buzzed” German ships and French positions on Blue Line in reaction to UN protests over Israel’s unilateral military manoeuvres in Lebanon.