Prime Minister Ehud Olmert signalled for the first time on Wednesday that Israel's willingness to talk seriously about the Arab peace initiative depends on a cessation of Kassam rocket fire on Israel.
Olmert praised the peace plan in a meeting with a delegation of four US congressmen from the House of Representatives Democracy Assistance Commission.
"We see a tangible change in the Arab position by virtue of the fact that 22 Arab countries are looking for a way to make peace with Israel, not war," he said.
Analysis: Where has all the panic gone?
However, Olmert also emphasized that it was impossible to hold serious negotiations on the initiative as long as rockets were falling on Israeli citizens on a daily basis.
Four rockets slammed into Sderot on Wednesday, one of which scored a direct hit on an apartment, moments after the owner had left. No one was hurt in the attack but several people were treated for shock.
Overnight Tuesday, two Hamas operatives were killed in an IAF airstrike on a rocket-launching crew, Palestinian security officials said. The IDF said it had attacked a group of armed men near the Jebalya refugee camp.
Following the relaunching of the initiative in March, the Arab League entrusted Jordan and Egypt with the job of discussing the plan with Israel. Although Israeli, Egyptian and Jordanian officials have said that a team of Egyptian and Jordanian officials representing the Arab League would come to Israel "soon" to talk about the proposal, no date has yet been set.
Olmert also related to Syria in his talks with the congressmen, saying that while he was interested in coming to a peace agreement with Syria, the current regime in Damascus supported terrorism and was not interested in reaching an agreement.
The Washington Post reported Wednesday that US Secretary of State Condoleezza Rice cautioned Israel against what the paper said was a growing sentiment in Israel to pursue peace with Syria instead of with warring Palestinian factions.
The paper quoted Rice as saying there was "no substitute" for creating a Palestinian state.
Rice, who took part in a meeting of the Quartet in Berlin Wednesday night, was scheduled to meet Foreign Minister Tzipi Livni at a conference on women in leadership in Vienna on Thursday.
The Quartet issued a statement following its meeting calling on the Palestinian authority to "do everything necessary" to restore law and order. The statement urged "all Palestinians to immediately renounce all acts of violence and respect the ceasefire."
Rice was quoted in the Washington Post as telling reporters traveling with her to Europe that she believed it was Israel's view, and "certainly our view, that the Syrians are engaged in behavior right now that is destabilizing to the region."
The Palestinian issue "is at the core of a lot of problems in the region," Rice added, saying, "there is no substitute for trying to get to the place where the Palestinians finally have their state and the Israelis finally have a neighbor who can live in peace and security with them."
Rice was instrumental in March in getting Olmert and PA Chairman Mahmoud Abbas to agree to discuss the parameters of a future Palestinian state - the so-called "political horizon" - at meetings that were supposed to take place every two weeks. Those meetings, however, have been largely derailed by the violence in Gaza.
Olmert and Abbas are expected to meet next week, for only the second time since Rice was here last, but even those talks are expected to focus on the current violence rather than the "political horizon."
Prior to her meeting with Rice, Livni nodded - during comments made in Prague where she met Czech Foreign Minister Karel Schwarzenberg - in the direction of continuing the political horizon talks.
"We need to continue the military action against Hamas," she said. "In parallel, there is a need to stop the smuggling along the Philadelphi Corridor, to continue to try and free Gilad Schalit, and at the same time also to continue the diplomatic dialogue with Abbas."
"Israel has not closed the door on the Palestinians," she said. "But it must be understood that the test is in the actions, and what is happening today in the Gaza Strip is moving the Palestinians farther away from their national aspirations."
Meanwhile, the security cabinet rejected Wednesday both a cease-fire with Hamas and proposals put forward by a number of ministers to intensify the military reaction in Gaza, choosing instead to continue with the policy agreed upon two weeks ago of pinpoint attacks against Hamas and Islamic Jihad targets and limited ground operations inside the Gaza Strip.
Following the meeting, the Prime Minister's Office issued a statement saying that the ministers heard briefings from security officials that indicated "the effectiveness of Israel's military actions and the relative decrease in Kassam rocket fire."
The statement said that Israel was "not negotiating a cease-fire with any terrorist organization. Israel will continue to strike at - and exert military pressure on - terrorist organizations, especially on Hamas and Islamic Jihad, without being held to any specific timetable."
The decision to continue with the same tactics being employed now came even as a number of ministers spoke at the meting of various other "creative" means of dealing with the rocket fire.
For instance, Shas head Eli Yishai advocated aerial strikes against Palestinian cites and towns in retaliation to the Kassam attacks on Sderot, after the residents have been warned to leave their homes. His Shas colleague, Yitzhak Cohen, raised the possibility of gradually cutting off gas, water and electricity supplies to the Gaza Strip, an idea that Shin Bet (Israel Security Agency) head Yuval Diskin said should be looked into regarding whether such moves would stand up under international law.
While Israel Beitenu minister Avigdor Lieberman recommended expanding ground operations and regaining control of the Philadelphi Corridor, Meir Sheetrit (Kadima) and Rafi Eitan (Pensioners) reportedly suggested firing Kassam-type rockets back into Gaza after each attack on Sderot.
They proposed that Israel develop an "Israeli Kassam," a cheap and simple rocket that could be fired upon Gaza as retribution. The idea raised was of a rocket that would cause little damage but put pressure on Gazans.
The ministers also stressed at the meeting the need to strengthen Sderot and neighboring communities "to allow them to lead normal lives while providing maximum solutions both to their needs and to the issue of structural reinforcement."
Yaakov Katz contributed to this report.