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As Operation Cast Lead enters its 17th day on Monday, the assessment in Jerusalem is that Hamas has been badly beaten and bruised, but is not yet willing to wave the white flag of surrender.
As such the cabinet met Sunday and did not change the parameters of the military operation. Nor, however, did it give any indication if - or when - it would decide to move to the next stage, widely believed to consist of expanding the operation and moving into Gaza's densely populated cities and refugee camps.
"Israel is nearing the goals that it set for itself. However, further patience, determination and effort are necessary to achieve those goals in a way that will change the security reality in the South so that our citizens will be able to feel long-term security and stability," Prime Minister Ehud Olmert told the cabinet.
Even as the fighting continued, diplomatic efforts continued to look for a formula that would end it. Amos Gilad, the head of the Defense Ministry's Diplomatic-Security Bureau, is expected to travel to Egypt on Monday or Tuesday to discuss an Egyptian cease-fire proposal.
While Israel wants a mechanism established on the Philadelphi Corridor between Sinai and Gaza to stop the smuggling of arms, Cairo has made it clear that it will not accept international forces on its side of the border.
Israeli officials said they would have no problem with an international force being deployed on the Gazan side of the border, but Hamas strongly rejects the idea.
Hamas officials were in Cairo Sunday discussing the truce proposal, and were reportedly joined by Turkish diplomats. Turkey has also put forward a cease-fire proposal based on the establishment of a monitoring regimen along the Gaza-Sinai border.
Various options are being discussed for halting the smuggling of arms. Visiting German Foreign Minister Frank-Walter Steinmeier said at a press conference with Foreign Minister Tzipi Livni that such a mechanism had to take Egyptian sovereignty into consideration.
He said a German technical team would travel to Egypt soon to discuss the situation, and that a high level German official had already traveled there on Sunday. The international community needed to come to the Egyptians with concrete proposals, Steinmeier said.
Meanwhile, the situation along the Gaza-Egypt border dominated the separate talks Sunday that visiting NATO Secretary General Jaap de Hoop Scheffer held with Olmert and Livni. While Scheffer's trip was planned long before the current crisis erupted, Gaza was obviously the center of the discussions.
Olmert, according to a statement issued by his office, told the NATO head that Israeli citizens had suffered from endless rocket attacks for almost eight years.
"Do you know another country that would be willing to suffer this, who would not have responded were its citizens under daily attack?" Olmert asked.
Scheffer, according to the Prime Minister's Office, said he understood Israel's desire to defend itself, but also expressed concern over the killing of innocent civilians inside Gaza.
Scheffer - who is scheduled to meet with Defense Minister Ehud Barak on Monday - is also expected to discuss Iran.
Yuval Diskin, the head of the Shin Bet (Israel Security Agency), told the cabinet Sunday that Iran was interested in creating a "stronghold" on Israel through Hamas in the south, and Hizbullah and Syria in the north.
Hamas must internalize that "Israel will not be willing to live with a cancerous Iranian emissary in its backyard," he said.
Diskin told the ministers that the number of rockets fired at Israel from the Gaza Strip since the start of Operation Cast Lead was substantially lower than what security forces had predicted, and that if at the outset of the operation it was expected that Hamas would fire between 100 and 200 rockets a day, that number was now somewhere in the 20s.
Diskin stressed the blow to Hamas's ability to smuggle weapons under the Philadelphi Corridor due to the IAF attacks, and noted that alongside the inevitable anger at Israel for the bombardments, Gazans were angry at Hamas for bringing such devastation to the Strip. He also noted that Hamas was using the clashes in Gaza as an excuse to execute Fatah supporters, and that since the operation began had killed "dozens" of them.
He also said that Hamas was "pillaging" the humanitarian aid sent in by the international community, taking it to its own storehouses and distributing it only to Hamas supporters.
Hamas was waiting for an agreement that would allow it to end the fighting with some dignity, or to reach isolated military achievements, Diskin said.
OC Military Intelligence Maj.-Gen. Amos Yadlin, meanwhile, told the cabinet that while Hamas had suffered a heavy blow and now realized it would have to reach a compromise with Israel, it was still able to extract a price through attacks on soldiers inside the Gaza Strip and rocket attacks on southern Israel.
Yadlin said Hamas's leadership in Damascus was "cut off" and the leadership in Gaza was "paralyzed." Hamas had realized its error in not anticipating an Israeli response to its ongoing rocket fire, and in expecting neither a ground operation nor the cold shoulder the world had shown the Islamist group, he said.