During the meeting, Peretz called for an end to the government's policy of restraint, claiming that it was time to strike back at Palestinian terror infrastructure in the Gaza Strip with the IDF's full force.

In the first suicide attack in Israel's popular southern resort town, a suicide bomber, identified as Islamic Jihad operative Mohammed Saksak, 20, of Gaza City, blew himself up at a bakery in a shopping center in Eilat's Ha'arava neighborhood killing three.

Defense officials said that Saksak had infiltrated Israel across the 220 kilometer border with Egypt, which is fenceless and patrolled by minimal IDF and Border Police forces.

Saksak is believed to have entered Egypt - possibly through an underground tunnel across the Philadelphi Corridor - and then driven to the Egyptian border with Israel, which he crossed on foot some 30 km from Eilat. From there, he made his way to the resort city at Israel's southernmost point.

According to a top officer in the Southern Command, the suicide attack was expected and was a threat that the IDF had been preparing for. He predicted however that the success would motivate additional terror groups to try and send additional bombers into Israel. In 2006, over 100 Palestinian terrorists who originated in Gaza were caught trying to infiltrate into Israel from Egypt.

According to the officer, Israel also needs to demand that the Egyptians do more to prevent the infiltration of Palestinian terrorists into the Sinai and then into Israel. "The threat has not fully materialized itself yet even with this suicide attack," the officer said. "I am concerned that this is just the beginning and the attacks will continue to happen."

Internal Security Minister Avi Dichter said that the attack in Eilat was "an exceptional event" and one that the defense establishment planned to keep that way. "The entrance of the terrorist demands steps taken with the Egyptians in order to ensure that the border remains a peaceful one," he said.

Witnesses said the bomber stood out because he was wearing a long winter coat on a warm, sunny day when he struck the small bakery in a residential neighborhood. Police said the bomb was in a bag he was carrying rather than an explosives belt often used in past suicide attacks. Shattered glass, body parts and blood-splattered pastries were visible on the sidewalk outside, alongside bread trays scattered by the blast.

Fawzi Barhoum, a Hamas spokesman in Gaza, called Monday's attack a "natural response" to Israeli military policies in the West Bank and Gaza Strip, as well as its ongoing boycott of the Hamas-led Palestinian government. "So long as there is occupation, resistance is legitimate," he said.

He also said attacks on Israel were preferable to the recent bout of Palestinian infighting in Gaza between his group and the more moderate Fatah Party of President Mahmoud Abbas. "The right thing is for Fatah weapons to be directed toward the occupation not toward Hamas," Barhoum said.

Islamic Jihad, which claimed responsibility for the attack together with two other groups, posted a statement on its Web site Monday saying that it had engineered the bombing in an attempt to "focus Palestinians' attention away from killing each other.

The only attack to hit Eilat since the outbreak of Israel-Palestinian violence in 2000 came in 2005, when terrorists linked to al-Qaida fired a Katyusha rocket from Jordan at the city, causing no casualties. The last deadly attack in the city was in May 1992, when Palestinian militants swam to an Eilat beach and killed a security guard.

Prime Minister Ehud Olmert said in a Kadima faction meeting that for "a long time, Israel [had] enjoyed the illusion of quiet." Olmert said that in recent months, Israel had prevented numerous terror attacks. The prime minister said he would consult security officials, and only after all relevant intelligence had been collected would the IDF decide on a course of action.

The IDF has asked for the erection of an electronic fence along the Israeli-Egyptian border but due to the cost - NIS 1.5 billion - the money has yet to be transferred. At the moment some five battalions patrol the 220-km border. Funds that were meant to be transferred to the fence were diverted to other projects as a result of the Lebanon war this past summer.

Less than 15 minutes before the deadly bombing, police received a call from Lt.-Col. (res.) Yossi Voltinsky, alerting local security teams that he had just transported a hitchhiker who aroused his suspicions. Voltinsky said that he had only understood that the man was suspicious, after he had allowed him to enter his vehicle, and that the man had fled the car before he could lock him inside.

Two police patrol cars arrived in the neighborhood within seven minutes of Voltinsky's car, and began looking for the mysterious hitchhiker, but their efforts were cut off minutes later by the blast.