Cabinet ministers viewed Sunday's attack in Kerem Shalom -in which a soldier and a tank commander, a second lieutenant, were killed - as signaling the intention of terror groups to intensify attacks against Israel.
The government started working on diplomatic channels with Europe, the United States and other countries to locate the soldier kidnapped by terrorists.
The security cabinet convened at 6.30 p.m. to discuss a possible Israeli response. Prime Minister Ehud Olmert headed to the Ministry of Defense compound in Tel Aviv Sunday afternoon to follow the army's handling of the situation.
"The government holds the Palestinian Authority --- including Mahmoud Abbas and the prime minister --- responsible for the serious attack in Kerem Shalom," Olmert told Cabinet minister Sunday morning.
Injured IDF soldier taken to Soroka Medical Center in Beer Sheva (Photo: Reuters)
Peretz: Intelligence pointed to planned kidnapping
During the meeting Defense Minister Amir Peretz said the defense establishment received intelligence pointing to Palestinian plans to carry out an attack against IDF targets south of the Gaza Strip.
Peretz will hold a special meeting with the IDF top brass Sunday afternoon.
Peretz is being updated with the latest on the IDF incursion into Gaza, as troops try to intercept the terror cell holding up the soldier.
Peretz said the arrest of two brothers affiliated with Hamas in Gaza on Friday, was meant to avert the attack pointed to in intelligence reports.
Peretz said that a number of suicide bombers have been killed and explosives devices have been neutralized in the Kerem Shalom area, activities which prevented infiltrations into Israel.
Livni urges pressure on Abbas
Foreign Minister Tzipi Livni said Sunday morning: "This is an opportunity for Mahmoud Abbas to prove the seriousness of his intentions. Israel expects him to act immediately and he has the necessary military tools to do so. Israel expects Abbas to act to return the kidnapped soldier to Israel."
At the end of the cabinet meeting Livni called a number of counterparts including European Union policy chief Javier Solana, US Secretary of State Condoleezza Rice and United Nations Secretary-General Kofi Annan.
Livni stresses Hamas' involvement in the attack, stressing that the Hamas government is not immune of Israeli reprisal operations.
The foreign minister also demanded that the EU, US and UN press Abbas to work on the release of the soldier.
Shin Bet: Hamas involved
The Deputy Shin Bet head said a number of terror cells recently intercepted along the Israel-Egypt border had planned to kidnap soldiers.
"This is the most serious and most successful attack for the terrorists, the largest since the pullout," he said.
He told cabinet ministers that the Hamas and the Popular Resistance Committees carried out the attack.
He also said that although Hamas boasts it compliance with a truce with Israel, its activists have been behind a number of attacks against Israel and continue to assist other factions to plan attacks.
Although Abbas wants to stop terror, there is an uncontrollable activity in Judea and Samaria financed by the Islamic Jihad, Iran and Hizbullah," he said.