The Shin Bet security service opposes targeted killings of Palestinian politicians, Shin Bet chief Yuval Diskin told the security cabinet Wednesday.

The cabinet, which was discussing Israel's response to the ongoing Qassam rocket fire from the Gaza Strip, adopted Diskin's recommendation and decided against targeting politicians. However, it approved another controversial proposal: targeting Hamas institutions in the Gaza Strip.

During a discussion of the use of targeted killings to combat Qassam launches, defense officials explained there were three types of targets, and different instructions for dealing with each.

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The first category is people directly involved in terrorism, including Qassam launches. The army's policy is to kill such people any time accurate intelligence produces a reasonable operational opportunity.

The second covers senior officials in the terrorist organizations' military wings, who can be killed only with the approval of Attorney General Menachem Mazuz.

The third category is Palestinian political leaders, and Diskin told the cabinet that he opposes targeting such people at all. "Has it helped us in the past?" he demanded.

After some debate, the cabinet agreed that political leaders should have immunity, even if they used to be involved in terror but have since transferred over to their organization's civilian wing. This means that Israel will not attempt to assassinate figures such as Palestinian Prime Minister Ismail Haniyeh, even though his Hamas organization has repeatedly claimed responsibility for Qassam launches.

Instead, the cabinet's decision read, targeted killings will be used only against "those involved in practice in committing [acts of] terror."

However, the cabinet decided, Israel will step up its response to the Qassam fire in other ways, including targeting Hamas institutions in the Gaza Strip.

This decision aroused some controversy, with Public Security Minister Avi Dichter, a former Shin Bet chief, opposing it. Another government official, who also argued this decision would only hurt Israel, explained: "Let's assume that we destroy the Islamic University. We'd immediately be slapped with an academic boycott in Europe."

But a majority of the ministers were closer to the position of Yitzhak Cohen (Shas), who argued that Israel should set a "price list" for Palestinian terror: "If Sapir College in Sderot is hit, we should hit their university."

In the end, the cabinet voted to authorize Prime Minister Ehud Olmert and Defense Minister Amir Peretz to decide which Hamas institutions should be targeted.

Finally, the cabinet asked the Israel Defense Forces to present it with a large-scale operational plan for halting the military buildup in the Gaza Strip and significantly reducing the Qassam fire.

"This is a final warning to the Palestinians," said a government source. "If the Qassam fire continues, this will mean war."

But another source said that while the intensity of IDF operations would be stepped up, the basic model for such operations would not change.

And some ministers said they left the meeting with the feeling that nothing at all had really been decided, and that the meeting was purely for the record - "to show that we're doing something" about the Qassams, as one put it.

Haniyeh said in response to the cabinet decision that "the Israeli escalation is madness planned by the highest levels of the state." Ismail Radwan, Hamas' spokesman in Gaza, added that Hamas would not sit with folded hands should Israel attack either its politicians or its institutions.

"Israel knows very well what Hamas' response will be," Radwan said. "If you try to hit the organization's leaders, you'll be responsible for the deterioration in the region."