Israel Prime Minister Benjamin Netanyahu is trying to calm the nation after a series of US officials have called last week's announcement to allow Israelis to build 1,600 homes in East Jerusalem an 'insult' to the US.
Israel told the Supreme Court that it would be too busy enforcing the new 10-month settlement freeze to enforce a long standing order to dismantle the illegal outposts of ideologically driven settlers.
The UN headquarters in Gaza was struck by Israeli fire. Fissures are emerging among Israeli civilian and military leaders over how and when to end the campaign.
The conflict in the Gaza Strip is already having an impact on the political landscape in Israel ahead of parliamentary polls in February.
Ehud Olmert's announcement on Wednesday night to cede leadership in September could spur a party shake-up and a shakier peace process.