Director of Military Intelligence Major-General Amos Yadlin told the cabinet Sunday that Israel's enemies have no interest in provoking any military conflict while US President George W. Bush is still in office.
The military, he warned, does believe a limited military campaign, which will probably not escalate into a full-fledged war, is possible.
"We have intelligence indicating terror activities are possible both on the northern and southern fronts. Hizbullah may choose to use one of their still disputed subjects, such as the Shaaba Farms or Imad Mugniyah's assassination," he told the cabinet.
Yadlin also briefed the ministers on the possible ramifications of Israel's prisoner exchange deal with Hizbullah, saying the Arab world has its reservations of the exchange.
As for the Iranian threat, Yadlin briefed the cabinet on the latest intelligence assessments, saying that Iran is forging ahead with its nuclear developments, despite the international community implementing some diplomatic and financial duress.
Syria, he said, is slowly by surely "escaping its international isolation, despite assisting Hizbullah. Damascus is taking several steps in order to get closer to the West, but is still very much a part of the axis of terror."
Ceasefire at risk of erosion
Hamas, said Yadlin, is mostly able to enforce the ceasefire in the Gaza Strip, but "the fact that the crossings are still closed, contrary to Hamas' expectations renders the ceasefire at risk of erosion.
"As for the smugglings – Egypt is cracking down on it, so we are seeing a decrease is smuggling affairs. However, quality arms are still being smuggled into the Strip."
Defense Minister Ehud Barak also spoke of the ceasefire in Gaza, saying he believed it was finally stabilizing: "We some sporadic fire in the first weeks, luckily with no casualties, but we reacted rather fiercely, a fact which allowed us to renegotiate for Shalit's return."
Israel, he added "will do everything in its power to ensure Gilad Shalit's return. I believe we should embargo the efforts in order to prevent any of the publications from harming the process. The negotiations should remain covert."