Internal Fatah divisions intensified after problematic party primaries prompted faction headed by imprisoned Marwan Barghouti to present separate electoral list for 25 January general elections. Dispute resolved by negotiations but split and popular dissatisfaction allowed hardline Hamas to win major West Bank cities in mid- December local elections. Increasing likelihood January elections will be postponed: EU foreign policy chief Solana threatened to halt aid if Hamas wins. U.S. Congress called for ban on Hamas participation, while Israel announced intention to prevent Palestinians in East Jerusalem from voting. Security situation in Gaza deteriorated at end of month: 200 Palestinian police stormed government offices in Rafah 2 January and earlier temporarily closed border crossing with Egypt to protest government failure to fight lawlessness. Israel imposed buffer zone in northern Gaza in response to rocket fire; launched air strikes after Islamic Jihad suicide bomb in Netanya 5 December killed 5. Former PM Binyamin Netanyahu elected new leader of Likud. PM Ariel Sharon briefly hospitalised for minor stroke.

U.S. Sec. State Rice brokered deal with Israel and Egypt to reopen Gaza-Egyptian border under Palestinian control with EU monitors. Major shakeup of Israeli domestic politics with Labour Party’s withdrawal from governing coalition after early November election of new leader, Amir Peretz. PM Ariel Sharon later announced resignation from Likud to form own centrist party, “Kadima”; former Labour head Peres left party to back Sharon. President Katsav dissolved parliament, set election for 28 March 2006. Israeli troops killed head of al-Qassam Brigade during West Bank clash; Hamas vowed to avenge death. Earlier in month Hamas declared would not extend informal ceasefire at year-end because Israel has failed to reciprocate. Palestinian Fatah party suspended primary election due to violence and fraud.

Israeli-Palestinian relations deteriorated.  Israel  re-imposed  restrictions  on  Palestinians travelling through West Bank, temporarily suspended security contacts with Palestinian Authority after Al-Aqsa Martyrs’ Brigade killed 3 Jewish settlers. Quartet special envoy James Wolfensohn stated Israel reluctant to loosen control over Gaza Strip; Israel denied foot-dragging and reached agreement in principle with Egypt to re-open Gaza-Egypt crossing with EU monitors. 10,000 Palestinians attended burial of senior Islamic Jihad leader Luay Saadi 25 October, killed by Israeli forces amid escalating violence in Gaza. Israel’s “rolling operation” to wipe out militants, announced after 5 killed in Islamic Jihad suicide bomb in Hadera, left 12 Palestinians dead, 23 arrested. U.S. President Bush met Palestinian leader Abbas, publicly distanced himself from 2004 pledge to sponsor creation of Palestinian state by 2009. Israel withdrew opposition to Hamas participation in January’s Palestinian elections.

Palestinian celebrations and chaos followed withdrawal of last Israeli troops from Gaza Strip 12 September. Withdrawal from 4 West Bank settlements completed 21 September. Egypt and Palestinian Authority (PA) pledged to seal porous Gaza border. PM Ariel Sharon called on Palestinians to make next peace move; reiterated view of Jerusalem as Israel’s “undivided and eternal capital”. 5 Palestinians, including 2 children, died in West Bank raid against Islamic Jihad organisation near Tulkarm 16 September. 21 killed in explosion in Hamas rally same day; Israel and PA rejected Hamas suggestion of Israeli involvement. Subsequent escalation of violence: 40 rockets launched from Gaza against Israel; 6 known militants killed in Israeli air-raids which continued despite announcement from Mahmoud Zahar, Hamas leader in Gaza, rocket launches would be stopped. By month-end over 400 alleged Hamas and Islamic Jihad members arrested in Israeli “First Rain” operation in West Bank. Earlier in month, U.S. Sec. State Rice signalled U.S. accepted possible Hamas participation in planned January 2006 Palestinian legislative elections, rejected by Israel. Israel’s Supreme Court ordered government to alter route of several portions of separation barrier while leaving it within West Bank; construction of wall around Jerusalem continued. Sharon narrowly fended off leadership challenge by Likud rival Binyamin Netanyahu 26 September.

Unilateral Israeli pull-out from 21 settlements in Gaza Strip and 4 in West Bank completed ahead of schedule 23 August; marked by less than expected resistance from settlers, and restraint from Palestinian militant groups. Negotiations concluded with Egypt over disposition of Egyptian forces along Gaza-Egyptian border. Finance Minister Binyamin Netanyahu - political rival to PM Ariel Sharon - resigned ahead of pull-out, widening split in ruling Likud party, and later announced leadership bid. Half of 8,500 Gaza settlers left before 15 August deadline; remainder, supported by 5,000 Israeli nationalists, evicted by Israeli security forces. 4 Palestinians shot dead by settler in West Bank; Sharon and Palestinian leader Mahmoud Abbas appealed for calm. Following pull-out, Israel began construction on E1 settlement east of Jerusalem, threatening to bisect West Bank. Israeli troops killed 5 Palestinian militants Tulkarm 25 August; 48 wounded in bomb attack on Beersheba bus, southern Israel, 28 August.

5-month unilateral, informal ceasefire of Palestinian militant groups severely undermined by spiral of violence by both sides. Rising tensions both within Israel and between Israelis and Palestinians ahead of mid-August pull-out from Gaza settlements. U.S. Sec. State Rice visited region in attempt to ensure smooth disengagement. West Bank suicide bomber killed 6 in Israeli Netanya town 12 July; attack claimed by Islamic Jihad. Israel reoccupied Tulkarm, killing Palestinian Authority (PA) policeman. Hamas and other Palestinian groups launched rockets into Israel from Gaza 14 July drawing sharp criticism from PA Chairman Abbas. Hamas increasingly involved. Israel launched air-strikes, raids in Gaza and threatened ground offensive. 2 Israeli civilians killed by Palestinian militants 24 July. At least 9 Palestinians (including several Hamas members) killed by Israeli forces in Gaza and further 2 in West Bank; clashes between Hamas and PA security forces claimed 3. Hamas, Islamic Jihad and PA agreed 30 July to work together to ensure smooth Israeli withdrawal. Israeli PM Ariel Sharon provoked further anti-disengagement anger by sealing Gaza strip to non-resident Israelis 14 July. 20,000 Israeli forces deployed to prevent infiltration by protestors. Construction of separation barrier, particularly in Jerusalem area, accelerated.

Palestinian and Israeli leaders’ summit ended in disappointment 21 June: sides failed to build on earlier progress over coordination of Israel’s planned August “disengagement” from Gaza Strip. Informal ceasefire announced in February continued to unravel: several Palestinian groups resumed armed and rocket attacks against Israeli targets and Israel announced resumption of initiated assassinations. Inter-Israeli tensions also rose: soldiers repeatedly clashed with settlers in Gaza as bulldozers levelled several dilapidated seaside buildings in preparation for demolition of settlements. U.S. Sec. State Condoleezza Rice warned Israel to stop settlement expansion elsewhere, including in Jerusalem - echoing May warning by President Bush - but construction continued unabated. Israeli PM Ariel Sharon pledged to hand over control of 2 West Bank towns to Palestinian Authority if latter takes steps to end violence; to date only 2 of promised 5 handed over. Earlier, Israel released 398 Palestinian prisoners as part of ceasefire deal.

First summit talks between U.S. and Palestinian leaders since 2000 held 26 May; U.S. President Bush met Palestinian leader Mahmoud Abbas, committed $50m in direct aid for housing and infrastructure projects in Gaza and reiterated commitment to roadmap and creation of Palestinian state. Israeli cabinet approved release of 400 Palestinian prisoners. February ceasefire increasingly fragile: Israeli soldier and member of Islamic Jihad killed in clash near West Bank town of Tulkarm 2 May; violence escalated after Palestinian militant killed in Rafah 17 May, Hamas mortar attack on Israeli settlements in Gaza followed, triggering first Israeli air strike since January; 2 Palestinians killed in West Bank 29 May. In change of tone 1,000 of 1,600 families in Gaza indicated willingness to move to Israel on condition relocated together. Israeli PM Ariel Sharon confirmed Gaza pullout to take place mid-August.

Informal truce between Israel and Palestinian militants under increasing strain, with marked escalation of incidents initiated by both parties. Three Palestinian children killed southern Gaza 11 April, Israeli soldier wounded near Gaza border 21 April, and series of shooting and rocket incidents in Gaza and to lesser extent West Bank. Israeli PM Ariel Sharon met U.S. President George W. Bush at Texas ranch 11 April. Bush endorsed Sharon’s Gaza pullout plan, urged Israel to stop settlement expansion but assured Sharon U.S. would not expect Israel to give up all West Bank settlements in future negotiations. Week after meeting, Israel announced plans to build 50 homes in northern West Bank settlement of Ariel. Sharon likely to announce 3- week delay in Gaza withdrawal, from late July to 15 August. Russian President Vladimir Putin visited region in bid to boost Russian role in peace process.

Israeli defence ministry approved construction of 3,500 new homes in Maale Adumim, largest West Bank settlement, provoking Palestinian and international criticism and overshadowing positive peace steps earlier in month. Critics said expansion would cut off Palestinians in East Jerusalem from others in West Bank. Earlier, Israel handed over West Bank towns of Jericho and Tulkarm to Palestinian Authority, while 13 Palestinian groups, meeting in Cairo, announced would maintain informal ceasefire until end of 2005 provided Israel reciprocated and released Palestinian prisoners. Israeli PM Ariel Sharon won key budget vote in parliament, paving way for Gaza withdrawal beginning July. Palestinian President Abbas ordered security crackdown after rampaging gunmen fired on his Ramallah compound 30 March.