Hamas is interested in renewing the relative calm with Israel but is prepared for military conflict and wants to improve the cease-fire conditions, Shin Bet (Israel Security Agency) head Yuval Diskin told the cabinet Sunday, as the western Negev was being pelted by Kassam rockets. Diskin listed Hamas's conditions as cancelling the blockade of the Gaza Strip, obtaining a commitment that Israel won't attack, and expanding the cease-fire to the West Bank. At the same time, Diskin warned that Hamas's military wing, Izzadin Kassam, was interested in and preparing for confrontation, saying the group "took advantage" of the cease-fire to improve its long- and medium-range missile capabilities. "They have the ability now to reach Kiryat Gat, Ashdod and the outskirts of Beersheba," he said. Diskin told the ministers that the fire was coming from various factions inside the Gaza Strip, including Hamas, and said there was no effective negotiator to work with. There had been a breakdown in trust between Hamas and Egypt, which brokered the cease-fire agreement six months ago, he said. Diskin also said that the humanitarian situation in the Gaza Strip had worsened, partly due to shortages of certain foodstuffs that were not coming through tunnels from Egypt in the necessary quantities. In addition, there were occasional power outages and Gaza's banks were "in trouble," he said. According to Diskin, the gaps between Fatah and Hamas remained wide and deep. He added that many people on the Palestinian street wanted to see the IDF enter the area and put an end to Hamas's control. He also said that divisions were growing between the Palestinians in the West Bank and those in Gaza, and that "three states are emerging for two peoples," two for Palestinians and one for Jews. Prime Minister Ehud Olmert began the cabinet meeting with a plea to ministers to tone down their statements, even though the country was in the midst of a political campaign. "I am aware of the fact that we are living in a period that is naturally sensitive and that there are many people who think that if one makes aggressive and daring statements, the statements will solve all problems," Olmert said. "I have no intention to compete with any of those who issue such statements." "A responsible government is not eager for battle, nor does it shy away from it. I have said this in the past, and I say it again now. Therefore, we will take the necessary measures with the necessary responsibility," the prime minister said. Olmert told the ministers that Israel had not been idle, and that hundreds of terrorists had been killed in the months leading up to June and the cease-fire. He told them that Israel would act when the time was right, but didn't need to give publicity to Hamas with endless banter about planned military action or timetables. Defense Minister Ehud Barak expressed similar sentiments, saying that neither the raid on Entebbe nor the Six Day War would have taken place if the level of discussion had been what it is now. Barak added that the army was preparing for military intervention but that its "time, place, and manner" would be decided in other forums. According to Barak, the international community was now more understanding of the necessity for Israel to act in the Gaza Strip. He said that even if they were to condemn the Israeli moves, most countries would understand that Israel could not turn a blind eye to Hamas's activities. "We have no magic formula where we will deliver a blow, the quiet will return to the South, and Hamas will disintegrate," Barak said. "We have to take into account that the return of quiet will be dependent on wide-spread action." While Olmert and Barak argued for cool heads and restraint, Foreign Minister Tzipi Livni and Vice Premier Haim Ramon called for intensive military action. Both said they had been saying for months that Hamas rockets should be met with an immediate and massive response, and insisted that these positions had nothing to do with elections. Livni said she did not accept the premise that those who wanted a strong IDF response were motivated by political considerations. Israel needed to respond to every rocket fired, even if it did not entirely stop the rockets, she said. "I don't accept the all-or-nothing approach," she said. "There is a large array of things that could be done in the middle. The calm is over. It was one-sided. We are having rockets fired at us and have to respond - militarily, diplomatically and economically." Livni convened a meeting in the Foreign Ministry Sunday night to discuss diplomacy aimed at halting the attacks, as well as the diplomatic ramifications of wide-spread Israeli action. Following the meeting, she issued a statement saying she had directed the ministry to take a number of steps to boost the international legitimacy of possible military moves, including the preparation of an official complaint on the rocket fire to be presented to the UN Security Council on Sunday evening. Likewise, Livni directed Israeli diplomats to impress upon the international community the gravity of the situation. She is also expected to speak in the coming days with fellow foreign ministers and tell them that Hamas is responsible for the situation in the south and that Israel has an obligation to protect its citizens. Public Security Minister Avi Dichter said it was impossible to destroy Hamas because it represented an ideology, although it was possible to destroy its military capabilities. Industry, Trade and Labor Minister Eli Yishai said the situation could not continue as is and recommended a renewal of targeted killings and a cutoff of certain supplies to Gaza. "They are laughing at us," Yishai said. Meanwhile, Amnon Yosef, spokesman for the Beersheba municipality, said the city of more than 200,000 was prepared for any scenario. He was responding to Diskin's claim that its outskirts were now within rocket range of Gaza. "We haven't received any warnings," Yosef said, "but we are prepared for this possibility as well." Shelly Paz contributed to this report.