"Hamas have internalized the extent of the physical and moral blow inflicted upon it. Unlike arrogant statements sounded in the media, the organization is conducting serious soul-searching on its strategic mistakes and operational failures," Military Intelligence chief Maj.-Gen. Amos Yadlin said Sunday in the weekly cabinet meeting. "Two weeks after the cease-fire began, terrorists not belonging to Hamas are challenging the organization and carrying out attacks in order to bring on another escalation. Hamas is deterred and respecting the cease-fire, but not doing enough to discourage the others," he continued. "Operation Cast Lead improved Israeli deterrence and brought radical factions to lesson-learning processesâ€¦ Hamas sees the rehabilitation efforts as an opportunity for inner Palestinian reconciliation, which would enable them to realize their ambition to take over the PLO, bringing an end to the two-state notion," Yadlin added. Earlier in the meeting, Prime Minister Ehud Olmert told the cabinet that Israel would respond firmly to Sunday morning attacks on Israel, in which four rockets fired from Gaza pounded the South. "The cabinet's position from the outset was that if there is rocket fire at residents of the South, there will be a response that will essentially be disproportionate," he said. "Two weeks have passed since Israel's decision to cease its fire in the Gaza Strip, and [the truce] was declared on two basic conditions: A complete halt in rocket fire and a stop to the smuggling of weapons to terror groups through the Philadelphi Corridor," he continued. "Those were the two conditions for the cease-fire and we knew that there was a considerable chance Hamas would continue with the rocket fire." "We won't return to the rules of the game that terror groups have tried to dictate and we won't be dragged into a never-ending shooting war," said the prime minister, stressing that Israel will not allow the rocket attacks to continue. Olmert said he had instructed Defense Minister Ehud Barak to order the army to prepare a response. "We won't give the terror groups warning as to when and how we'll react, but Israel will respond and act at the time and place of its choosing," he said. Olmert also referred to Thursday's decision by a Spanish judge to launch a probe of seven former top security officials for alleged war crimes in the 2002 bombing in Gaza that killed top Hamas terrorist Salah Shehadeh as well as 14 other people. "Israeli commanders who fulfilled their duty to protect Israeli citizens and are now subject to an investigation for war crimes will get the full support of the Israeli government," he said. "Petitions like those filed in Madrid are an expression of double standards and years of turning a blind eye on the part of those who have ignored the continuous attacks on Israel." Hamas spokesman Taher Nunu said Olmert's threat was an attempt by Israel to "find false pretexts to increase its aggression against the people" and to undermine Egyptian efforts to mediate a long-term cease-fire. Meanwhile, in what may have been a veiled criticism of Barak, Foreign Minister and Kadima leader Tzipi Livni blasted those seeking to reach a settlement with Hamas. "There are those sitting with the Hamas regime who want to reach understandings with the group, and there are those working to bring an end to the Hamas regime," she told cabinet ministers. "A settlement with Hamas would give it legitimacy, and those working for that with the Egyptians need to understand that." Prior to the meeting, Livni called for a strong response to the morning's Kassam attacks. "We must not try to reach a settlement with Hamas, we need to act against the group with might," she said. "Israel will respond, whether a Kassam hits its target or not, and that's how I will act as prime minister." "We need to use strength and a lot of it," continued the Kadima leader. "In my opinion, there is no reason to wait. We need a response and an immediate one." Barak also vowed a response, but he said Israel would act with discretion. "In election season, there is a lot of chatter by people who have never held a weapon and don't understand the conditions under which we must act," he said. "We will respond in the right way to what is happening in the Gaza Strip. The professionals under my guidance will formulate a correct response, but we have to act with discretion and responsibility. Hamas was dealt a severe blow and it will be dealt one again, but the decision needs to be made by the experts." Shas chairman Eli Yishai said IAF planes must be sent on bombing raids over Gaza in response to every rocket attack on western Negev communities "Hitting hundreds and thousands of terrorists' homes will teach the terror groups a lesson," he said at the cabinet meeting. "We must put a price even on firing rockets at the sea and open areas, as well as attempts to smuggle weapons and dig tunnels."