Conflict returned early in 1996 with a series of devastating suicide bombings in Israel carried out by the Islamic militant group Hamas, and a bloody three-week bombardment of Lebanon by Israel.
Peres narrowly lost elections on 29 May to the right-wing Binyamin "Bibi" Netanyahu, who campaigned against the Oslo peace deals under the motto "Peace with Security".
Netanyahu soon enflamed Arab opinion by lifting a freeze on building new settlements in the occupied territories and provoking fears about undermining Muslim holy sites in Jerusalem by opening an archaeological tunnel under the compound of al-Aqsa mosque - one of Islam's holiest sites.
Despite his antagonism towards the existing peace process, Netanyahu, under increasing US pressure, handed over 80% of Hebron in January 1997 and signed the Wye River Memorandum on 23 October 1998 outlining further withdrawals from the West Bank.
But his right-wing coalition collapsed in January 1999 in disarray over the implementation of the Wye deal. He lost elections on 18 May to Labour's Ehud Barak who pledged to "end the 100-year conflict" between Israel and the Arabs within one year.
The five-year interim period defined by Oslo for a final resolution passed on 4 May 1999, but Yasser Arafat was persuaded to defer unilateral declaration of Palestinian statehood to give a chance for negotiations with the new administration.