NEWS: Israel is considering its next move in an exchange of violence with Hamas, as another Palestinian is killed. A toddler in Gaza is killed when militants apparently misfire a rocket. Three Lebanese soldiers and ten Palestinian refugees are wounded in clashes in a refugee camp in northern Lebanon. Israeli settlers are expanding an outpost near Nablus. A new poll suggests that a large majority of Palestinians have no confidence in reconciliation between Fatah and Hamas. Political tensions in Egypt are fueling unrest in Sinai. Recent Palestinian corruption convictions raise the question of political prosecutions. A small group of Israeli settlers prepare to evacuate an "unauthorized" outpost. Former Mossad chief Dagan says "Israel is in a unique place to make peace with Arabs." Japanese investment in a business park near Jericho aims to help Palestinian society towards economic sustainability. American novelist Alice Walker refuses to authorize a Hebrew translation of “The Color Purple” in protest against Israeli policies. COMMENTARY: Crispian Balmer looks at Israeli anxieties about the Egyptian presidential election. Pres. Peres says the Middle East badly needs a two-state solution. Barak Ravid asks if PM Netanyahu's speech 3 years ago endorsing a two-state solution was sincere. Carlo Strenger says "national-religious messianism" is endangering Israel. Norman Ornstein profiles the late Economist Jerusalem Bureau chief Peter David. Osama Al Sharif looks at the possibility of a war in the Middle East this summer. John Daly says Israel's growing relations with China are compromised by disputes over Iran and energy. Colum Lynch looks at the Palestinian bid to have the Church of the Nativity listed as a World Heritage Site in Palestine.