The New York Times says both Israel and the Palestinians have concluded the other side does not want a peace agreement. Right-wing Israelis express outrage at PM Netanyahu's partial settlement moratorium, but reports suggest that new housing is still being approved and that in reality construction will continue apace. Palestinians also reject the announcement. Reuters looks at the plight of Gaza's homeless. At least one Palestinian is killed in an Israeli airstrike on northern Gaza. Israel is to remove 90 Fatah members from its "wanted list." Speculation continues that any possible prisoner swap between Israel and Hamas will include jailed Fatah leader Marwan Barghouti. Alex Fishman argues that Israel must move quickly to save the collapse of the PA in order to prevent chaos. Israeli Culture and Sports Minister Limor Livnat describes the Obama administration as "awful." The Jerusalem Post analyzes the political crisis facing Pres. Abbas. The National profiles a graffiti campaign between Hamas and Fatah in Gaza.

Today's news again focuses on a possible Hamas-Israel prisoner swap, and the LA Times argues that an agreement would harm Pres. Abbas. Xinhua claims that Israel is rejecting the release of 40 prisoners, while Asharq Al-Awsat says the deal now hinges on a single prisoner. Hamas leaders say the next 24 hours are crucial and accuse Israel of manipulating the process. Speculation grows that the deal might include senior Fatah leader Marwan Barghouti. Mideast Envoy George Mitchell reportedly visits an Israeli settlement, and Libya is planning to introduce a Security Council resolution on the settlements. Abbas reiterates complaints that the US is not doing enough to promote peace. A commentary in the Guardian says Israeli-Syrian peace talks are a distraction. The Financial Times argues that Obama still has leverage over Israel, while Al-Hayat claims he has been outmaneuvered by "neoconservatives." The New York Times reviews a controversial new book on Jewish history by Israeli professor Shlomo Sand. An original ATFP translation of an Al-Ayyam article by Hassan Al-Batal analyzes Israeli reactions to the PA government state building plan.

News reports today are dominated by speculation about a potential prisoner exchange between Israel and Hamas involving captured Israeli soldier Gilad Shalit, and Ha'aretz examines who the winners and losers would be in the event of an agreement. Fox news interviews PM Fayyad. IPS reports that Palestinian children in the occupied territories face daily attacks from Israeli settlers. Two Hamas fighters are killed in an explosion in Gaza, and Yasser Abed Rabbo says Hamas would form a pact with the devil to weaken the PLO. Pres. Abbas says there will be no third intifada. A Palestinian student in Israel appears to have been rejected from university program because of his ethnicity. The BBC profiles life in divided and occupied Jerusalem. Gershon Baskin considers the merits of the PA government state building plan. In Bitter Lemons, Yossi Alpher and Ghassan Khatib debate how to move forward given the present impasse. In the New York Times blog, Daniel Gordis, Daoud Kuttab and David Makovsky debate the prospect of a Hamas-Israel prisoner exchange.

The Washington Post profiles the first planned Palestinian city in the West Bank. The PLO Central Committee is scheduled to meet next month and is expected to approve the continuation of Pres. Abbas and PM Fayyad in office. Exchanges of fire between Hamas and Israel threaten the continuation of the de facto truce. An Israeli expert predicts that at least 130 countries would recognize a unilaterally declared Palestinian state, and Fayyad reiterates he will not accept a "fragmented" state. Right wing Israeli MKs plan to commemorate the death of extremist Rabbi Meir Kahane. Pres. Peres says Netanyahu can and must make an agreement with the Palestinians. Sever Plocker says that Israelis seem completely unaware of the crisis of international legitimacy they are suffering. The Jerusalem Post says the PA State building plan would be unstoppable. There is widespread speculation about a prisoner exchange between Israel and Hamas, but Tariq Alhomayed says Hamas has absolutely no ideas about how to govern. Hussein Agha and Robert Malley critique all existing proposals for dealing with the Israeli-Palestinian conflict in the New York Review of Books.

Palestinians complain Israel is diverting water to settlers in the occupied territories. Jailed Fatah leader Marwan Barghouti calls for popular and diplomatic action to combat the occupation, and some others are speaking openly about the prospect of a third intifada. Reuters examines the state of the peace process. The Sydney Morning Herald says Jerusalem is the key to peace, and a Palestinian MK warns that Israel is planning 15,000 new settlement units in the occupied city. The US expresses concern over Israel's arrest of five Palestinian intelligence officers. Palestine is allocated a postal code by the Universal Postal Union. Pres. Abbas says Israel is conducting secret talks with Hamas about a possible temporary Palestinian state. Ynet argues that Israel does not face a demographic "threat" from Palestinians. PM Netanyahu says that despite growing doubts about his intentions, he wants a final status agreement. Pro-settler soldiers in the Israeli military threaten mutiny.

The New York Times points out that Pres. Abbas' consideration of resignation constitutes a crisis for potential peace talks. Some Jewish Americans are making a coordinated effort to buy property in the occupied Palestinian territories. David Ignatius says the PA State building plan is the best hope for a better future, and the Christian Science Monitor argues that unilateralism on either side in the Middle East is implausible. Israeli warplanes reportedly attack Gaza. Former PA Prime Minister Ahmed Qurei adds his voice to those expressing doubt about the future of a two state negotiated peace agreement. Ha'aretz says the prospect of a Palestinian declaration of statehood should rejuvenate the Israeli peace camp, and wonders if PM Netanyahu's intransigence is pushing Washington to embrace Palestinian positions, a concern also voiced in a Ynet editorial. The Jerusalem Post has competing editorials condemning and praising the emerging strategy of Pres. Abbas. Pres. Obama says Israel's ongoing settlement expansion could be "dangerous."

Israeli government plans to add 900 new settler housing units in occupied East Jerusalem draws ire from the US government, the UN, Europeans, Palestinians and Arabs. Israeli bulldozers demolish two Palestinian apartments in the city. A group of Jewish Americans is on a mission to buy property in Jerusalem and other parts of the occupied territories. A commentary in Ha'aretz suggests that PM Netanyahu senses US weakness on Jerusalem, but another suggests that he has a personal and political interest in advancing peace. A new poll finds 75% of Jewish Israelis support negotiations with the PA. In Cairo, Pres. Abbas reaffirms a commitment to seek UN recognition of Palestinian statehood, and an editorial in the Arab News argues that if both Israel and Hamas are against the idea, it must have some merit. Rami Khouri argues that the world is tiring of the Palestinian question, and Daoud Kuttab says that Palestinians have no choice left other than unilateral action. Shai Feldman and Khalil Shikaki propose guiding principles for further US engagement in Israeli-Palestinian peace making.

Most news reports and commentaries today focus on possible moves by the Palestinian leadership to declare statehood, although in an interview with IPS, lead Palestinian negotiator Saeb Erekat says that the PLO is considering asking for recognition of Palestinian sovereignty in the occupied territories by the UN. Both the US and EU say that such moves are premature, and it has been angrily rejected by Hamas. Israel has responded by threatening to annex parts of the West Bank. The Washington Post highlights the holy places in Jerusalem as a persistent flashpoint. Roger Cohen argues that Israeli-Palestinian peace is presently unachievable and a truce would be the best option. The LA Times suggests the spirit of the late extremist Rabbi Meir Kahane is growing on the Israeli right. Mideast envoy George Mitchell reiterates US demands for a halt to settlement activity in occupied East Jerusalem. The Daily Star examines Hamas' strategic thinking. Time asks what the future of the new Palestinian security forces would be in the event of a resignation by Pres. Abbas.

Muslims, Christians and Jews combine on a major study of Jerusalem. Israeli PM Netanyahu angrily rejects any notion of Palestinian unilateral declaration of statehood, and Israeli officials say West Bank territories could be unilaterally annexed. PLO officials say Pres. Abbas tenure could be extended, or that the PLO will assume the responsibilities of the PA. IDF chief rabbi says those who show mercy will be damned. The JTA profiles a new "planned" Palestinian city in the West Bank.

The Palestinian election commission recommends postponing scheduled January voting. Pres. Abbas must approve the proposal, which has already led to squabbling between Hamas and Fatah. Israel's expulsion of a Palestinian student from the West Bank to Gaza continues to draw criticism, including from the US government. AP says radicals will fill the void if peace talks collapse. UPI outlines the benefits and risks of the PA state building plan. In a new poll, more than half of Israelis back talks with Hamas. At least one Palestinian is killed in the central Gaza Strip as Israeli leaders say they are prepared to attack the area again if necessary. Ha'aretz reports FM Lieberman has dropped peace initiatives from Foreign Ministry priorities. Palestinians warns Israeli diplomacy may now focus on Syria. The Gulf News profiles Palestinian construction magnate Hassib Sabagh. In the New Yorker, Lawrence Wright investigates the Gaza war.