The stabbing deaths of an Israeli couple and three of their children Friday night in the Jewish settlement of Itamar has stoked concern about a deterioration of a broad calm prevailing in the West Bank, as well as new blow to negotiations. Palestinian militants are suspected to be behind the attack, which took place in the northern West Bank near Nablus.

In a bid to mollify outraged settlers – including a small minority with a record of vigilantism – Prime Minister Benjamin Netanyahu approved hundreds of new homes in the West Bank settlements over the weekend. A statement from his office said the projects are "measured" and are located in large settlement blocs near the border between the West Bank and Israel, areas which Israel insists it will keep under any deal with the Palestinians.

The Itamar attack is making it more difficult for Mr. Netanyahu to maneuver between hard-line coalition allies pressing for retribution and an international community that views Israel’s insistence on settlement activity as an obstacle to talks. The US criticized his government's announcement of new housing units, while settlers dismissed it as insufficient. They say Israel's relaxation of movement restrictions on Palestinians leaves them exposed, and prioritize security over Israel's ties with the US.

"What happens if you respond, will America do something to you?’’ challenged Tamar Fogel, the couple's 12-year-old daughter, when Netanyahu paid a condolence visit. She was not at home at the time of the attack, which two of her brothers also survived.

Dimmer prospects for new peace initiative

Though the peace process has been moribund for nearly six months, the announcement is expected to strengthen Palestinian resolve to refuse to talk amid settlement construction. That is likely to dim the prospects for a new Netanyahu diplomatic initiative for an interim peace accord, which would establish a Palestinian state on temporary borders – leaving the sensitive issue of final borders to be discussed later.

A dispute over Israel's refusal to stop building in the West Bank stymied talks in the fall after Israel ended a 10-month settlement freeze in September 2010.

"This makes a bad situation worse," says Yossi Alpher, the co-editor of Bitterlemons.org, an Israeli-Palestinian online opinion forum. "This attack allows him to fortify his coalition even more from the right."

Abbas calls attack 'immoral'

Palestinian officials have been accused of not sufficiently condemning the attack, and in some cases, even inciting it. In response, Palestinian President Mahmoud Abbas conducted a rare interview with Israel Radio aired Monday in which he called the attack "immoral." He also said that the Palestinian Authority’s security forces are assisting Israel in the investigation.

On the ground, the area around Itamar and the nearby Palestinians villages is tense. While the military conducted a third day of house-to-house searches, Israeli police forces stepped up their numbers on West Bank roads. They are on alert for possible revenge attacks by groups of radical settlers in the region, a policy known as "price tag" that challenges the authority of Israel’s government by taking justice into their own hands.

Military officials fear such attacks could trigger an escalation that would undermine a broader calm in the West Bank. With Palestinians already planning mass demonstrations across the West Bank for Tuesday calling for domestic reconciliation between Hamas in Gaza and the Abbas in the West Bank, fresh attacks could shift the focus of the march to clashes with Israel.
Damage to Netanyahu's credibility

In Itamar this week, residents said Netanyahu must build up the more far-flung, smaller settlements as well, not just in settlement blocs near the border with Israel. "What country asks another country where it can build?" asks Hayim Bigon, an engineer whose wife works in the Itamar kindergarten.

While Netanyahu tries to channel public outrage, members of his cabinet have warned of growing isolation. Defense Minister Ehud Barak on Sunday predicted a "diplomatic tsunami" facing Israel as the Palestinians enlist growing support for international recognition of a state along the 1967 West Bank borders with or without a peace deal or Israel's consent.

Israel’s expected new initiative is supposed to sap momentum from the Palestinian move, but the new building will make it harder to convince anyone that it has plans to thin its presence in the West Bank to make way for a Palestinian state.

"This is going to cause damage to Israel’s credibility, especially when it comes to any future initiative that Israel takes in the peace process," said Meir Javedanfar, a Tel Aviv-based Middle East analyst. "You cannot say taking part in a weight loss program and then have four extra cheesecakes a day. The whole point undermines the claim you want to lose weight."