By Paul Reynolds
World Affairs Correspondent, BBC News website
The suicide bomb attack in Tel Aviv has precipitated a crisis which was probably inevitable at some stage during Hamas rule in the Palestinian territories.
Ehud Olmert: deciding the level of confrontation
The issue is how the new Israeli government and the new Palestinian leadership will deal with each other.
Nobody expects any political solution. It is the level of confrontation that has to be decided.
It appears that this time, the Israeli government, under the leadership of interim Prime Minister Ehud Olmert, is opting for containment.
It is holding Hamas responsible. Hamas called the attack "self-defence", though the bomber came from Islamic Jihad. Israel is thereby putting down a marker for the future.
But Israel is holding back from direct immediate military action.
It apparently wants to continue gathering international support for the diplomatic isolation of the Hamas government and this could be put at risk if the attention was on an Israeli military response.
And it wants to concentrate on what it intends to be the imposition of its own solution - the unilateral drawing of Israel's borders, keeping the whole of Jerusalem and the major settlement blocs.
End of dreams
The current Israeli strategic view was summed up recently by a former Likud party minister, Dan Meridor, who has travelled a similar political route to that of Ehud Olmert.
Hamas leader Khaled Meshaal: truce or end of truce?
He told reporters on a visit to London: "Two dreams have gone - the dream of a greater Israel between the sea and the River Jordan and the dream of peace following an Israeli withdrawal to 1967. Now we are faced with reality."
Hamas's political leader Khaled Meshaal on the other hand told the BBC in February: "Hamas will not recognise Israel. We will not give legitimacy to occupation."
But if Israel withdrew to the lines of 1967, he went on, Hamas might "possibly give a long-term truce with Israel."
Hamas therefore will not accept the borders as drawn by Mr Olmert. And Israel will not accept vague talk about long-term truces. Hence the stalemate.
Some Israeli doves have suggested going back to the Arab League concept of a regional agreement under which a full Israeli withdrawal would take place in return for full recognition by all Arab governments.
But that is not a realistic proposition. There needs to be trust and intent on all sides for that and there is neither.
So however you vary the mix of this particular recipe, it is not going to produce a result acceptable to either side.
Deciding the level of violence
But each side does have some control over the intensity of violence.
Israel has the power to take extensive action. It will never do nothing. But doing something major is an option it has to weigh up each time.
Hamas will oppose Israel politically and could continue with the truce it announced last year as it prepared to run in the Palestinian elections.
If Hamas ended its own truce, the confrontation would grow and might grow out of control.
The United States will probably support whatever Israel decides to do.
The Europeans and others will be able to do little beyond hoping for an end to Hamas government one day.
They and the US are already cutting their aid to the Palestinian Authority and channelling it to relief agencies which give direct to the people.
They have demanded changes in Hamas policy that Hamas will not accept.
Hamas is turning instead to Iran and other Muslim states.
Diplomats still murmur about the "road map", the plan for peace drawn up by the quartet of the US, the EU, the UN and Russia. But that gradualist approach was always optimistic and is now all but discarded.
The quartet is meeting in New York on 9 May.
By then we might know how the new Israeli and Hamas leaderships intend to deal with each other.