Relations between Fatah and Hamas continued to deteriorate, Israeli incursions into Palestinian population centres intensified and potential for escalation on both fronts increased. Israeli low-intensity war in Gaza included incursion near town of Jabaliya 14 October and major fighting in northern Gaza 1 November. Some 280 Palestinians – approximately half civilians – and 2 Israeli soldiers killed in past four months. Violence came as Hamas delegation attended talks with Egyptian mediators in Cairo on possible prisoner exchange with Israel involving captured soldier Gilad Shalit. Meanwhile, several Hamas and Fatah activists killed in factional clashes in West Bank and Gaza. Negotiations on unity government collapsed despite Qatari and Egyptian mediation efforts. Hamas blamed Fatah for lack of progress and accused it of providing political cover for Western-imposed sanctions. Israeli cabinet voted to bring into government hawkish Beiteinu party.

Palestinian Authority (PA) President Mahmoud Abbas said 29 September there was “no progress” in forming national unity government. Tensions between Hamas and Fatah increased over 15 September assassination of General Jad Tayeh, senior intelligence officer, and 4 bodyguards. Hamas-led Interior Ministry deployed Executive Force to prevent demonstrations by PA security forces against government 1 October; 2 killed in ensuing clashes. Abbas and Hamas leader Haniyeh had reached 8- point agreement 11 September, implicitly endorsing Quartet conditions (recognise Israel, renounce violence and accept past agreements) and establishing basis on which new Palestinian government would be formed. But Abbas’ explicit statement in UN speech 21 September that new government would recognise Israel caused Hamas to backtrack. Israeli military court overturned previous ruling to release on bail Hamas MPs and cabinet ministers currently in detention; separately, Deputy PM Nasir Shair released 27 September.

Clashes continued in Occupied Territories and particularly Gaza Strip as international attention focused on conflict between Israel and Hizbollah (see Lebanon, below). Israel launched daily incursions, air strikes, and persistent shelling into Gaza in effort to end Palestinian rocket fire and secure return of soldier kidnapped in June. 5-day Israeli operation in West Bank killed up to 19 militants and top al-Aqsa Martyrs Brigades commander. UN reported more than 200 Palestinians, including 44 children, killed since 28 June, one of bloodiest periods since October 2000. 1 Israeli soldier killed and 26 Israelis injured during same period. UN warned humanitarian situation as serious as southern Lebanon. Pressure on Hamas increased as Israel arrested deputy PM al-Shaer, parliamentary speaker Dweik and other senior Hamas MPs. 2 Fox News journalists kidnapped by unknown gunmen in Gaza 14 August, released 27 August. Israeli politics shaken by repercussions of war with Hizbollah: Defence Minister Peretz ordered inquiry into conduct of military campaign, while embattled PM Olmert said plan to unilaterally withdraw from parts of West Bank to be suspended.

Conflict between Israel and Hamas in Gaza, triggered by 25 June abduction of Corporal Shalit, escalated following breakout of new conflict with Hizbollah (see Lebanon, below). Israel Defence Forces (IDF) launched incursions, air strikes and bombardments in Gaza aimed at ending rocket attacks on Israeli towns and forcing militants to unconditionally release captured Israeli soldier. Attacks killed 150 Palestinians, approx. half civilians; 1 Israeli soldier killed. Several Palestinian government ministries and power and water plants destroyed, risking further humanitarian crisis. Israel arrested almost all Hamas cabinet members and parliamentarians. UN Emergency Relief Coordinator Jan Egeland, described month- long offensive as “disproportionate use of force”. Assault prompted international calls for restraint, but UN Security Council resolution urging Israel to halt Gaza offensive vetoed by U.S. International efforts to achieve prisoner exchange and mutual cessation of hostilities unsuccessful.

Tensions rose dramatically as Israeli military launched operation in Gaza Strip following kidnapping by Palestinian militants of Israeli soldier Gilad Shalit. Hamas called for soldier not to be harmed but released in exchange for Palestinian prisoners. Israeli PM Olmert rejected negotiations for release and threatened escalation. Israeli troops entered Gaza 28 June, 3 days after Palestinian raid on Kerem Shalom army post; subsequently arrested 8 Palestinian ministers and at least 20 legislative council members in West Bank. Earlier, Hamas and Fatah reached agreement on “Prisoners Initiative” implicitly backing 2-state solution and avoiding prospect of 26 July referendum promised by Abbas if Hamas rejected document. At least 13 Palestinian civilians killed in Israeli air strikes in Gaza in month. Hamas ended informal 16-month ceasefire following killing of 7 members of Palestinian family on Gaza beach by suspected Israeli shelling. EU announced temporary aid mechanism to channel €100 million to Occupied Territories, bypassing Hamas-led government.

Mounting violence in Gaza fuelled by power struggle between Fatah and Hamas loyalists raised fears of civil war. Rivalries focused on respective control of Palestinian President Abbas and Islamist Palestinian Authority (PA) government over security forces. Abbas sent police to Gaza in response to Hamas deployment of 3,000-strong force provoking clashes from 17 May; 10 killed before “national dialogue” to resolve differences commenced 25 May. Abbas gave Hamas 10 days to agree to borders’ framework negotiated among Palestinian imprisoned leaders or call referendum. Israeli air strikes on Gaza killed 15 militants, senior Islamic Jihad leader and several civilians. Israel’s parliament voted 65-49 in favour of PM Olmert’s government 4 May. Olmert received implicit U.S. backing for “bold ideas” for West Bank: removal of remote settlements, keeping larger enclaves and imposing border if political negotiations not resumed by end 2006. U.S. House of Representatives backed legislation to brand PA “terrorist sanctuary” severing all contacts with PA and further restricting assistance. Quartet (U.S., Russia, EU, UN) agreed in principle to endorse “temporary mechanism” to channel aid to Palestinian people while bypassing government. Air strikes and clashes with Lebanon-based militants followed rocket attack 28 May.

Violence escalated between Israelis and Palestinians while tensions rose between Hamas and Fatah. Islamic Jihad suicide bombing in Tel Aviv 17 April killed 9. Hamas government called blast “self-defence” and “natural result” of continued Israeli depredations, leading to international condemnation. Meanwhile, Israeli strikes on Gaza reportedly killed at least 6 children and several militants, in reprisals over continued Qassam rocket attacks. EU and U.S. suspended funding for Hamas-led government but Gulf countries and Iran pledged over $200 million, and Arab League said to be preparing to transfer 2-months’ wages direct to government employees. Tensions between Hamas and Fatah worsened after new Palestinian Interior Minister Said Siyam announced formation of shadow security force comprising members of militant groups to be led by militant faction leader Jamal Abu Samhadana. Mahmoud Abbas issued presidential decree nullifying proposal, leading to angry Hamas response and clashes between supporters of both sides. New Israeli coalition set to take power, composed of centrist Kadima, left- leaning Labour, ultra-Orthodox Shas and Pensioners’ parties.

Interim Israeli PM Ehud Olmert’s Kadima party won 28 March general elections, but by smaller margin than expected. Coalition discussions to begin early April. Olmert stated would continue to refuse negotiations with Palestinians, instead moving unilaterally to consolidate settlements and impose border “by 2010”. Unable to agree on Palestinian coalition government, Hamas cabinet won parliamentary confidence vote and was sworn in by President Mahmoud Abbas 29 March: Ismail Haniyeh new PM. Israeli raid on Palestinian prison in Jericho heightened tensions: troops seized Ahmed Saadat, leader of left-wing Popular Front for Liberation of Palestine, and other inmates, killing 3. Saadat due to stand trial for assassination of extreme right-wing Israeli tourism minister in 2001. In first fatal suicide attack of 2006, 4 Israelis killed by al-Aqsa Martyrs’ Brigade near Kedumim 30 March, while Israeli soldiers killed 2 militants near Gaza boundary. Palestinian Popular Resistance Committees (PRC) blamed Israel and Palestinian security forces for killing leader 31 March; Israeli army denied involvement. Subsequent PRC clashes with Palestinian security forces killed 3.

President Mahmoud Abbas asked Hamas’ Ismail Haniyeh to form new Palestinian Authority (PA) government 21 February. Hamas rejected Abbas’ call to pursue exclusively peaceful methods of resistance but left open question of respecting existing agreements. Hamas leaders pursued international recognition, visiting Egypt, Qatar, Turkey; received invitation to Moscow. Israel vowed to sever remaining relations with PA, although interim PM Olmert did not rule out negotiations. Israeli government prevented new Palestinian legislature from meeting 18 February, characterised PA as “terrorist entity”, and instituted sanctions including halt to monthly transfer of tax revenues collected on behalf of PA. Hamas called on Arab and Muslim states to make up shortfall. EU announced aid package of €120 million to avoid breakdown of administration. Violence escalated with 8 killed in Israeli raids on Palestinian towns and villages in West Bank, clashes between youths and Israeli troops, and air strikes on Gaza militants. Protesters threw stones at headquarters of international observers in Hebron and EU offices in Gaza in protest at European publication of caricatures of Prophet Mohammed.

Seismic shifts in Middle East as militant Hamas party scored resounding victory in Palestinian elections and Israeli PM Ariel Sharon incapacitated by massive stroke. Overwhelming Hamas victory in 25 January legislative elections led to celebrations in West Bank and Gaza, grim warnings from Israel, and concern among international community. Vote held in relative calm with 77% turnout. Hamas won 45 district-based and 29 national list seats, totalling 74 out of 132, while previously dominant Fatah won 45 seats (28 national). Palestinian Authority President Mahmoud Abbas asked Hamas to form new government after PM Ahmed Qurei and cabinet resigned. With Sharon comatose, Israel, led by acting PM Ehud Olmert, ruled out talks with Hamas government until it renounces violence. U.S., EU, Russia and UN called on Hamas to renounce violence and recognise Israel or face future aid cuts. Fatah supporters staged violent protests and clashed with Hamas in West Bank and Gaza after election result announced. Olmert assumed leadership of recently formed Kadima party, ahead of Israeli general elections due 28 March.