Prime Minister Ehud Olmert on Sunday gave his military a "free reign" to hit Gaza terrorists after a rocket slammed into a house in Sderot following a visit there by the new UN humanitarian chief, who called for an end to the daily salvos. Speaking in Jerusalem at a gathering of the Conference of Presidents of Major American Jewish Organizations, Olmert said he would not allow a humanitarian crisis to develop in Gaza, but the people of Gaza could not live normal lives while Israelis across the border were constantly targeted by rockets. "We will reach out for anyone involved in perpetrating terrorism against Israelis, and we will not hesitate to attack them in order to stop them," the prime minister said. "That applies to everyone, first and foremost Hamas. Hamas is in charge of Gaza." Regarding kidnapped IDF Cpl. Gilad Schalit, Olmert said "I, unfortunately, do not share the optimism expressed regarding Gilad Schalit." Olmert also downplayed a report by German magazine Der Spiegel that claimed, Saturday, that Israel was preparing to announce Eldad Regev and Ehud Goldwasser dead. Regev and Goldwasser are the IDF reservists whose capture by Hizbullah trigerred the Second Lebanon War. "I am not willing to accept the statement regarding the two captives in the North. So long as we do not have proof, we will continue to act on the basis of the assumption that they are alive," Olmert said. Regarding building in Jerusalem, Olmert said "we will continue to build in Jerusalem and the larger settlement blocs. We will not build new settlements, but Jerusalem has a special status and in its Jewish parts the reality on the ground will change in coming years." "There is no man amongst my critics who has helped build and develop Jerusalem more than me," the prime minister, who formerly served as Jerusalem mayor, said. "It has been agreed and discussed between myself and [Palestinian Authority Presidetn Mahmoud Abbas, also known as] Abu Mazen that Jerusalem is an important and sensitive subject. We will not begin negotiations with this sensitive subject, because this could bring about a failure of negotiations. We will postpone talks about Jerusalem to the final stage [of negotiations]," he said. Palestinian negotiator Saeb Erekat said Sunday that Abbas would meet Tuesday with Olmert. The two have had regular meetings, but no progress has been so far reported. In his address, Olmert said one possibility is signing a declaration of principles, but insisted a peace accord cannot be implemented unless "terror is stopped completely from Gaza." "I hope the negotiating part of the basic principles can still be achieved in 2008," he said. He said waiting longer would encourage more radical elements among the Palestinians, especially Hamas. "I will not hesitate to make every painful compromise that is needed to bring true and genuine peace," he said, while refusing to compromise on Israeli security. He said the current Palestinian leadership is committed to peace with Israel "like no Palestinian leadership before," warning that if the effort fails, no future Palestinian regime would be as willing to make peace.