Optimism surrounding peace process highest in years, but tempered by absence of significant progress on ground, political fragility ahead of 9 January Palestinian presidential elections and renewed violence in Gaza Strip. UK PM Tony Blair, in visit to region, announced will host conference on Palestinian reform February/March 2005 - international donors declared willingness to significantly increase funding to Palestinian Authority. But conference will not address peace process. Israel said will not attend. PLO Chairman and likely next Palestinian president Mahmoud Abbas signalled moderate stance with explicit condemnation of armed uprising; meanwhile, Israeli PM Sharon and his Gaza pullout plan received major boost with deal to form coalition government of Sharon’s Likud party and opposition Labour party. Abbas repaired strained Palestinian-Arab relations in visits to Syria, Lebanon and Kuwait; Israeli-Egyptian relations also thawed noticeably. Violence in Gaza continued: Israeli incursions into Khan Younis refugee camp following rocket attacks left dozens of Palestinians dead. Palestinians killed 5 Israeli soldiers in Gaza checkpoint bombing 12 December.

Following U.S. election victory, President Bush pledged to promote Middle East peace process, raising hopes for end to Israeli-Palestinian impasse. But objective of Palestinian state postponed by Washington from Roadmap’s 2005 deadline to within president’s term (i.e. 2009). 11 November death of Yasser Arafat created new dynamic in conflict. Elections for new Palestinian Authority president to be held 9 January. Fatah former PM Mahmoud Abbas most prominent candidate, with imprisoned Marwan Barghouthi wavering on whether to run. U.S., EU and Israel promised cooperation to ensure smooth running of election – with Israel agreeing to ease restrictions in Occupied Territories, allow participation of Palestinians in East Jerusalem, and permit international observers to monitor voting – but many Palestinian groups, including Hamas, insist legislative and local elections be held as well. Fragile security and political situation could easily derail voting process: Gaza shooting incident at mourning tent for Arafat by Fatah gunmen 14 November left 2 Abbas guards dead. Israel assassinated at least 6 Palestinian militants late November. Israeli PM Ariel Sharon apologised to Egyptian president Hosni Mubarak after IDF troops killed 3 Egyptians along Gaza border 18 November in apparent error.

In historic vote 26 October, Israeli parliament approved (67-45) PM Ariel Sharon’s plan to dismantle Israeli settlements in Gaza Strip. White House hailed vote as step forward in peace process. But rifts within Sharon’s Likud party and continued resistance from settlers and religious right pose major obstacles to plan’s implementation. Finance Minister Binyamin Netanyahu and 3 other ministers threatened to resign if plan not put to national referendum within 2 weeks; Sharon rejected call. Yasser Arafat airlifted to Paris for treatment of reported serious blood disorder; Palestinians met to determine who would take over during his absence. Bombing of Taba Hilton and tourist camps at Ras Shaitan on Sinai Peninsula killed at least 34 people 7 October, including 12 Israelis. Israeli ground operations and airstrikes continued in Gaza: UN said 17-day “Days of Penitence” incursion killed 107 Palestinians, left nearly 700 homeless and caused over $3 million in damage.

Israeli tanks entered Gaza 30 September in response to rocket fire; at least 31 killed in bloodiest day since 2000. Further violence continued in Occupied Territories: Israeli airstrike on alleged terrorist training camp Gaza 7 September killed 14, strike 19 September Gaza City killed senior Hamas member Khaled Abu Shamiyeh, IDF raids West Bank 15 September left 10 dead. Palestinian attacks killed 10 Israelis, including 2 in Jerusalem suicide bombing 22 September. Syria-based Hamas leader Izzideen Al-Sheikh Khalil killed in Damascus car bombing 26 September; Hamas and Syria blamed Mossad, no comment from Israeli government. Israeli PM Ariel Sharon faced increasing opposition to Gaza pullout plan from settler lobby: 40,000 protested Jerusalem 12 September. Finance Minister Binyamin Netanyahu called for national referendum on plan, to be voted on by cabinet 24 October, and parliament 3 November. Iran warned Israel against targeting its nuclear facilities after announcement latter to purchase 500 “bunker- busting” bombs from U.S.

Suicide bombers blew up 2 buses in Beersheba 31 August, killing 16, in worst attack in Israel since October 2003. Hamas claimed responsibility, saying attacks retaliation for killing of its leaders. Yasser Arafat survived challenge to his authority led by former security chief Muhammad Dahlan. In 19 August speech, Arafat acknowledged serious mistakes and pledged reform of Palestinian Authority. But inter-Palestinian violence continued in Gaza as factions struggle for power ahead of planned Israeli pullout in 2005. Gaza intelligence chief wounded and 2 bodyguards killed in attack by unknown gunmen west of Gaza city 25 August. In Israel, PM Ariel Sharon’s Likud Party voted to prevent Labor Party from joining governing coalition, in effect blocking Sharon’s Gaza pullout plan (Labor votes crucial for plan’s approval by cabinet). Sharon, meanwhile, adjusted Gaza plan, saying pullout would occur at one time rather than in 3 phases, and announced expansion of some existing West Bank settlements. Thousands of jailed Palestinians launched hunger strike 15 August to protest Israeli prison conditions.

Political crisis in Gaza eased as PM Ahmed Qurei retracted resignation after receiving assurances from Yasser Arafat he would have authority to carry out security reforms. Crisis began with series of kidnappings by Palestinian gunmen protesting corruption in Palestinian Authority, followed by wider demonstrations when Arafat appointed cousin as head of revamped security services. Arafat later reversed appointment. Factional power struggle likely to continue ahead of Israel’s’ planned Gaza pullout in early 2005. Palestinians won diplomatic victory at UN as General Assembly voted 150 to 6 in favour of resolution urging Israel to abide by International Court of Justice opinion declaring Israeli security barrier in West Bank illegal. Israel said would ignore ruling, but planned to reroute section of barrier closer to 1967 border in line with Israeli Supreme Court decision. IAEA head Mohamed ElBaradei visited Israel 6 July for talks on ridding Middle East of nuclear weapons.

Israeli cabinet approved watered-down version of PM Ariel Sharon’s Gaza Strip pullout plan 6 June. Plan calls for phased withdrawal but sets no firm deadline, and requires vote before each of 4 phases. First phase unlikely to be put to vote before March 2005. Israel negotiating with Egypt on possible security role for Cairo in Gaza following pullout. Egyptian involvement officially welcomed by Yasser Arafat, but denounced by militant groups in Gaza. Arafat reportedly set to appoint his interior minister, Taid Abdul Rahim, as head of security for Palestinian Authority. Israeli troops killed leader of al-Aqsa Martyrs Brigades and 5 others in Nablus 26 June. Bribery charges against Sharon dismissed 15 June. Israeli high court ruled 30 June parts of controversial West Bank security wall illegal.

Israeli army, citing need to flush out militants and destroy tunnels used to transport arms, launched massive incursion into Gaza Strip, leaving over 40 dead and 2,000 homeless. Raid prompted strong international criticism and UN Security Council resolution condemning Israel. Israeli PM Ariel Sharon presented amended Gaza pullout plan to cabinet 30 May for approval, but after heated debate, adjourned meeting without decision. New plan calls for phased military withdrawal and evacuation of 21 Jewish settlements in Gaza. Likud party had rejected earlier draft in 2 May referendum. Palestinian PM Ahmed Qurei gave cautious endorsement to plan, saying withdrawal was opportunity for movement towards wider peace agreement. Egyptian intelligence chief Omar Suleiman said 24 May Cairo prepared to play security role in Gaza. Sharon given new political life with reports that Israeli attorney general will not indict him on corruption charges. Senior Hamas leader killed in Israeli airstrike 30 May.

Israeli helicopter attack killed Hamas leader Dr Abdel Aziz Rantisi, who replaced Sheikh Ahmed Yassin after latter assassinated 22 March. Israeli PM Ariel Sharon threatened - and then backed down - that Yasser Arafat could also be targeted. New Hamas leader unnamed, but likely Mahmoud Zahar, Rantisi's deputy. In U.S. policy shift, President George W. Bush publicly backed Sharon plan for unilateral withdrawal from Gaza Strip, prompting criticism from EU and outrage from Palestinians and Arab states. Members of Sharon's Likud party to vote on plan 2 May, but PM equivocal on whether he might still take plan to Knesset if party votes against it.

Israeli airstrike killed Hamas founder and spiritual leader Sheikh Ahmed Yassin along with 7 others in Gaza 22 March, sparking fears of major escalation in violence. Attack sent hundreds of thousands of Palestinians into streets and drew international condemnation. Dr Abel Aziz Rantisi, one of Hamas’s most combative figures, selected as new leader for Gaza Strip. Killing of Yassin came week after Israel launched series of raids into Gaza in response to 14 March twin suicide bombings in Israeli port Ashdod, which left 10 dead. Israeli assault on 2 Palestinian refugee camps in Gaza 7 March killed 14, including 10 gunmen and 3 boys. Ariel Sharon said Likud party referendum would decide fate of Gaza pullout plan. Israeli chief prosecutor officially recommended indictment of Sharon; final decision to be made by attorney- general, likely in April.