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By Jonathan Marcus
BBC diplomatic correspondent
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Israel is trying to identify whether the gunman was part of a group
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The target of the Palestinian gunman's attack in Jerusalem was highly significant.
The Merkaz Herav Yeshiva - a Jewish religious seminary - is the place from where the religious-inspired Jewish settlement movement in the West Bank sprang.
It is the very centre of religious Jewish nationalism and its symbolic importance may well not have been lost on the organisation which ordered this attack.
The Israeli authorities already know the identity of the gunman - a resident of Jabel Mukaber in East Jerusalem. This is especially worrying for security chiefs given the fact that East Jerusalem residents have much greater freedom of movement than Palestinians from the West Bank.
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The attack on the Yeshiva is a grim development in the litany of violence
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If there is an active Palestinian militant group operating out of East Jerusalem this also underlines one of the limitations of the barrier Israel has constructed in the West Bank.
There will also be questions about why the Israeli intelligence services had no apparent warning of this attack.
But what matters most is who gave the gunman his orders.
Wider consequences
According to Hezbollah television in Lebanon, a so far unknown organisation has said it carried out the attack. The group was named after a prominent Hezbollah leader, Imad Mughniyeh, who was blown-up by a car bomb in Damascus in mid-February.
A group named after Imad Mughniyeh says it was responsible
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Hezbollah held Israel responsible. Israel believes that Hezbollah has significant links with Palestinian groups in the West Bank, especially with the militant wing of the Fatah organisation - the al-Aqsa Martyrs Brigade.
This is a plausible connection. But claims of responsibility may amount to little.
Assuming that the attacker was not just an enraged individual, Israel's first goal will be to roll up the specific cell and network from which the gunman came.
But depending upon whose fingerprints are on the operation, the wider consequences could be considerable.
'We will fight extremists'
In the short-term there will be stepped-up security in Jerusalem and more checkpoints in the West Bank.
Talks between Israel and the Palestinian Authority President Mahmoud Abbas are likely to survive this incident.
After all they also survived Israel's recent large-scale incursion into the Gaza Strip, though a flying visit by the US secretary of state was needed to patch up the diplomatic battle damage.
Israeli government spokesman Mark Regev signalled as much when he sought to distinguish between the reaction of Hamas and the mainstream Fatah movement.
"The Palestinian leadership under President Abbas, condemned last night's atrocity, last night's massacre," he told the BBC.
"It was Hamas in Gaza that was celebrating, and I think we have to distinguish between these two different views on the Palestinian side. One side says it wants to negotiate with us - it wants peace, it wants reconciliation. Of course we have to try to reach a historic agreement with them."
"The other side," he went on, "the extremists - those hard-core Jihadist elements who oppose peace - who oppose reconciliation - we have to fight them."
Hezbollah connections
Quite where these talks will lead given the divisions between Hamas and Fatah and given Israel and Washington's insistence that Hamas must be isolated, is far from clear.
Police have named Ala Abu Dhaim as the gunman
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The deadline for progress of the end of this year, when President George W Bush prepares to leave office looks more and more unattainable.
Whoever ordered this gun attack, the emotions raised by this incident will inevitably influence Israel's response to continuing rocket fire from the Gaza Strip.
A potential Hezbollah connection could raise tensions on the northern border as well. And if there is a connection with militants in Fatah on the West Bank, then that could greatly complicate Mr Abbas's position.
There could be domestic political implications in Israel too.
If talks with the Palestinians continue there will be strong pressure from within orthodox religious circles for the Shas party to leave the government.
It is ambivalent about the talks with Mr Abbas to say the least and it has set itself firmly against any discussion of the future division of Jerusalem.
It will have to weigh up the benefits of being inside the coalition, in terms of patronage and power, with the demands of the broader religious community.
The attack on the Yeshiva is a grim development in the litany of violence.
Anyone counting on progress on the peace front this year looks to be betting against the prevailing trend.
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