Israeli troops and tanks left the Gaza Strip on Saturday, witnesses said, ending an incursion into the Hamas-ruled enclave made after the bloodiest clash in 14 months killed two soldiers and at least one Palestinian.
The violence underscored deadlock in U.S.-mediated talks between Israel and Palestinian President Mahmoud Abbas, whose peace strategy has been sapped by Hamas hostility along with continued Israeli settlement construction on occupied land.
Resisting U.S. pressure in what analysts called a bruising encounter with President Barack Obama in Washington this week, Prime Minister Benjamin Netanyahu said Israel would not stop building in West Bank areas it annexed to East Jerusalem.
Obama wants Israel to halt settlement in East Jerusalem, an issue that created new friction when a plan to build 1,600 more houses was published as Vice President Joe Biden visited to urge "proximity talks" with U.S. mediation.
The Arab League, which had given its blessing to indirect Israeli-Palestinian negotiations, signaled a major review in strategy.
"We have to study the possibility that the peace process will be a complete failure," League Secretary-General Amr Moussa told Arab leaders gathered in the Libyan town of Sirte.
"It's time to face Israel. We have to have alternative plans because the situation has reached a turning point," he said.
The impasse had triggered sporadic rocket attacks this month from Gaza which drew Israeli airstrikes. On Friday, Palestinians ambushed soldiers who, the army said, had crossed the border to dismantle a mine. Two infantrymen were killed and two wounded.
Israelis said they killed two Palestinian gunmen but Gaza hospital officials confirmed only one Palestinian death. The clashes were the fiercest since the three-week Gaza war of early 2009. Some 1,400 Palestinians, mainly civilians, and 13 Israelis, mainly troops, died in that conflict.
Ramifications for Hamas
Islamist Hamas spurns the Jewish state but has largely held fire since the war. It said its men took part in Friday's fighting, but only in order to repel the Israeli incursion.
"We have been used to seeing breakaway (Palestinian) groups doing the firing, and Hamas trying to calm things down. Possibly it is loosening its grip, for all sorts of reasons," Defense Minister Ehud Barak told Israeli television on Friday.
"Should that indeed prove to be the case, then there will also be ramifications for Hamas," he said, but added: "We have no interest in returning the region to what was in the past."
U.N. Secretary-General Ban Ki-moon, who during a visit to the region this month urged Israel to lift a Gaza embargo tightened after Hamas took over in 2007, also voiced concern.
"I reiterate my appeals ... for maximum restraint and an end to all violence, in particular at this critical time when we are engaged in efforts to revive peace talks," he said in Sirte, on the sidelines of the Arab League summit.
Gazan doctors said a 23-year-old Palestinian was killed in the clash near the town of Khan Younis, and five others wounded.
The dead man, identified as a civilian, was given a hero's funeral on Saturday, with scores of masked gunmen marching among the hundreds of mourners. "Martyr, rest in peace, and we will continue the struggle," they chanted.
Israel captured Gaza, along with the West Bank and East Jerusalem, in a 1967 war. It withdrew unilaterally from Gaza in 2005 but has expanded Jewish settlements in the West Bank and East Jerusalem. Palestinians want a state in all the territories.
