Since the Hamas takeover of the Gaza Strip, Israel has faced an increasingly complex set of military options to stop attacks from the territory, and a debate over its humanitarian responsibilities for the strip's 1.4 million people.
The political split between the West Bank and Gaza has also strengthened calls in Israel to abandon the idea of a Palestinian state, which was at the core of the Oslo peace accords signed in 1993.
Gaza is now ruled by an ascendant Islamic movement that calls for Israel's destruction, and the West Bank by a disorganized secular party seeking immediate peace negotiations. That divide has cast doubts on whether the formula of a Palestinian state existing side by side with Israel is still viable.
"What is starting to emerge is a Palestinian Authority with two heads -- one that accepts the two-state solution of Oslo lock, stock and barrel, and the other that does not," said Ron Pundak, an Israeli architect of the Oslo agreement. "And there is concern the West Bank could become a new battleground between Fatah and Hamas. But is Oslo dead? No. Is it threatened? Yes."
Former generals say Israel now has a wider range of military options to contain rocket fire from the strip. Hamas is considered a terrorist organization by the United States, the European Union and Israel, and the government it is running in Gaza has not been recognized internationally.
Hamas likely to grow stronger
At the same time, former military officials warn, Hamas's forces are likely to grow stronger with complete control of weapons-smuggling routes into Gaza from Egypt. Yaakov Amidror, a retired major general who headed the assessment and evaluation branch of Israel's military intelligence, said Israeli forces could move into Gaza and occupy the rocket-launching areas, and deploy along the Egypt-Gaza border to deter smuggling.
"Is there a military solution to what has happened? Yes," Amidror said. "But it will be very costly in Palestinian and Israeli lives, very time consuming, and very expensive. And it will be very hard to stay."
The Palestinian Authority president, Mahmoud Abbas, has called for immediate negotiations to determine the borders of a Palestinian state, the status of refugees and the future of Jerusalem. Israeli Prime Minister Ehud Olmert has tepidly pledged to talk with Abbas about how to begin such negotiations.
But Israeli and Palestinian analysts say time is not on the leaders' side.
Abbas' warning plays out
Before Israel withdrew from Gaza in the fall of 2005, Abbas warned then-Prime Minister Ariel Sharon that doing so without a political or security agreement would greatly strengthen the Islamic movement by making it appear as if Hamas had forced Israel to retreat.
Four months later, in January 2006, Hamas won a parliamentary majority, with many of its candidates saying that Israel's unilateral withdrawal vindicated their armed approach.
The Israeli government has not yet completed a 456-mile barrier separating Israel from the Palestinian population of the West Bank, where Abbas's branch of the Palestinian Authority holds tenuous sway. Advances by Hamas there -- the staging area for the vast majority of suicide bombings during the Palestinian uprising that began in 2000 -- would threaten Israel's security far more than the Hamas takeover of Gaza.
"The only way Abbas can be rescued is by getting a political process started with Israel," said Walid Salem of the Panorama center, a Palestinian institute in Jerusalem that promotes democracy. "Otherwise, what happened in Gaza will happen in the West Bank within two years."
But former Israeli prime minister Binyamin Netanyahu, who heads the opposition Likud Party, and other politicians have redoubled their arguments that the idea of a Palestinian state in Gaza and the West Bank is over.
Jordan, West Bank 'confederation'?
Netanyahu has revived a proposal calling for Jordan, most of whose residents are of Palestinian descent, and the West Bank to enter into a "confederation" that would bind them together economically, politically and on security matters. Such an arrangement would presumably leave much of the West Bank, at least that portion Israel has effectively annexed with its separation barrier, under Israeli control.
Under that proposal, Egypt would assume responsibility for Gaza, which it held before the 1967 Middle East war. But Hamas is an offshoot of Egypt's Muslim Brotherhood, the Islamic political movement that is President Hosni Mubarak's chief opposition.
The summit attended by Olmert, Abbas, Mubarak and King Abdullah II of Jordan in Sharm el-Sheikh, Egypt, this week was designed, in part, to head off those proposals by advocating the start of comprehensive peace talks based on a 2002 Arab League proposal.
The plan would grant Israel recognition across the Arab world in exchange for a full withdrawal from all territory taken in the 1967 war. It also calls for a "just" solution to the Palestinian refugee problem.
Olmert called the plan "important." But his domestic political standing is weak, and beginning negotiations could alienate the hawks in his coalition government.
'Irony of history'
A decade before Oslo, the Israeli military government in the territories embraced an unarmed and fledgling Islamic movement, licensing Islamic schools, sports clubs, charities and the university that would become the training ground for Hamas's political leadership.
The idea was to create an Islamic political counterweight to Yasser Arafat's Fatah-dominated Palestine Liberation Organization, the group Israel feared most until Hamas declared itself in armed opposition to the Jewish state as the first Palestinian uprising erupted in 1987.
Now Abbas has begun revoking the licenses of those Hamas charities and cutting off their flow of outside funds.
"This is an irony of history," said Yossi Alpher, a former officer in Israel's foreign intelligence service, Mossad, who edits the Web site Bitterlemons.org. "But I believe an Islamic political movement would have emerged in Palestine, and it would have been armed, whether Israel encouraged it or not."
Yaron Ezrahi, a political science professor at Hebrew University, said Israel's "policy moves over the years have been consistently rational in the decision-making stage and utterly irrational in terms of understanding the consequences."
"It has always thought of its policy toward the Palestinians and the region as moves in a chess game," he said. "But the situation has always been far more like trying to keep a small boat steady in a rushing river."
After Israel's withdrawal, Gaza was seen as a test of the Palestinians' ability to build a state. But Israel, citing security concerns, closed Gaza's trading passages more often than not. The agricultural projects envisioned as the foundation of a new economy collapsed.
Bush administration blamed for Hamas win
Stunned by the Hamas election victory a few months later, Israeli officials privately blamed the Bush administration, which had lobbied in favor of Hamas's participation as part of its policy to promote democracy in the Middle East.
"Terrorists are using the system to get more and more power," Tzipi Livni, Israel's foreign minister, told a seminar in Herzliya last week, adding that until they "adopt certain values," such groups should be barred from the ballot. "Unfortunately, it didn't work before the elections in the Palestinian Authority."
Israel immediately froze the monthly transfer of tax revenue it collects for the Palestinians under the Oslo agreement, and Western nations cut aid to the Hamas-led administration.
In domestic court filings, the Israeli government argued that its military occupation of Gaza had ended, freeing it of responsibility for the welfare of the people who live there. The United Nations still classifies Gaza and the West Bank as Israeli-occupied territory.
The Palestinian Authority could no longer pay salaries to teachers, doctors, bureaucrats and some 65,000 members of the security forces. Hamas refused international demands that it recognize Israel and renounce violence in exchange for a resumption of aid.
The embargo hit the strip hardest because a higher percentage of its population relies on government salaries for income. Rocket fire from Gaza into southern Israel became a near-daily event. Israeli restrictions on Gaza residents traveling to the West Bank furthered a sense of division between the two territories.
"The steps taken by the international community with the presumed purpose of bringing about a Palestinian entity that will live in peace with its neighbor Israel have had precisely the opposite effect," Alvaro de Soto, the U.N. special coordinator for the Middle East Peace Process, wrote in a May "end-of-mission" report.
Poverty, barriers and obstacles
Olmert has pledged to release some of the estimated $700 million in frozen tax revenue to Abbas and restore the monthly transfers. International donors have said they would renew financial aid to his government.
But Kevin Kennedy, the U.N.'s humanitarian coordinator for the occupied Palestinian territory, said last week that 65 percent of Palestinians now live on less than $2.41 a day. He said the number of Israeli military checkpoints, barriers and obstacles in the West Bank has increased by 43 percent since Israel pledged to reduce them under a 2005 agreement brokered by Secretary of State Condoleezza Rice.
Kennedy said that with Hamas in charge of security on the Gaza side, the Gaza passages are now effectively sealed. The Israeli military has been allowing daily aid convoys to supply Gaza with food staples, medicines and fuel, but a humanitarian crisis looms unless trade can be normalized.
"Israel, as the occupying power, is responsible for the health and welfare of the occupied population in Gaza," Kennedy said. "Whether they do it on their own or have someone else do it for them, that's another matter."