Initially, America's war on terror aroused hopes among hawks in the Israeli cabinet that Ariel Sharon would get unlimited freedom of action to pursue the conflict with the Palestinians.

There are now fears that the price of the current war will be for the Americans to shut their eyes to the serious dangers confronting Israel and the region from Teheran to Baghdad

Maariv columnist Rafi Mann

"Terror is terror, murder is murder," Mr Sharon said, accusing Yasser Arafat of leading his own coalition of terrorism.

But now the Israelis fear the US war on terror means they will have to make a compromise peace with the Palestinians against their vital interests, and perhaps give their blessing to a wider coalition including old enemies such as Syria and Iraq.

The Israeli columnist Rafi Mann wrote in the newspaper Maariv: "There are now fears that the price of the current war will be for the Americans to shut their eyes to the serious dangers confronting Israel and the region from Teheran to Baghdad."

A Palestinian boy was shot dead almost within sight of the negotiators

One consequence of America's war on terror is that a long-awaited, much-delayed meeting between Israeli Foreign Minister Simon Peres and Palestinian leader Yasser Arafat has taken place in Gaza.

The huge loss of life in New York and Washington has forced progress towards peace in the Middle East that no-one had thought possible.

There was, it is true, only a cold, reluctant handshake between Mr Peres and Mr Arafat when they sat down together - and no one had any illusions that the meeting would have happened without massive American pressure.

Phones white hot

President Bush is engaged in the Middle East as never before.

Phone lines between the White House and the Israeli Government have been white hot in recent days, and the exchanges frank, even brutal.

Despite the ceasefire declared by Arafat, the Israeli crime against our people is continuing. That's why the Palestinians have a right to defend themselves

Islamic Jihad spokesman Abdullah Shami

At one stage, Mr Peres said the American Secretary of State, Colin Powell, was calling him three times a day.

The Americans need to bring calm to the Middle East to help bring Arab states into their coalition against terror.

But Israeli officials have cautioned against over-optimism.

Although the two sides have renewed their security contacts, suspended since July, any further serious violence will halt progress to the next stage of the process, which involves a lifting of the Israeli blockade on Palestinian areas and, eventually, substantive political negotiations.

Colin Powell has been in regular contact with the Israelis

"We've said very clearly that while the talks will continue, Israel reserves the right to respond when we want and with full severity to any attack," the prime minister's spokesman, Raanan Gissin, said.

While the peace talks in Gaza were getting under way, a 16-year-old Palestinian boy was shot dead almost within sight of the negotiators.

And an Israeli army post was also attacked and three soldiers were injured.

No end to violence

In a year of this conflict, the two sides have been incapable of halting the violence.

Few believe this ceasefire will be any different from those which have gone before.

Islamic militants groups have already said they will not abide by the truce.

The Islamic Jihad spokesman in Gaza, Abdullah Shami, said: "Despite the ceasefire declared by Arafat, the Israeli crime against our people is continuing.

"That's why the Palestinians have a right to defend themselves. This attack on the Israeli army post comes as a self-defence act and therefore we support it."

US-Israel co-operation

Israel is being asked to do two things by the United States.

The first is to contribute valuable intelligence and expertise, which it is doing.

Israeli is telling the United States how to fight exactly the kind of "anti-terrorism" war it has been waging, relying on intelligence, infiltration and assassination - an unconventional conflict with an unseen enemy.

But the Israelis are also being asked to accommodate themselves to the new diplomatic realities. This they are finding more difficult.

And whatever the needs of the United States in its coalition building, the fundamental issues dividing Israel and the Palestinians remain unchanged.

The bad news for the United States is that the Middle East conflict remains as intractable as ever.