Shin Bet chief Yuval Diskin told the cabinet Sunday that should elections be held in the Palestinian Authority, Fatah's chances of winning would be close to zero.

Diskin said during Sunday's weekly cabinet meeting that the Fatah faction is in bad shape, and therefore Israel should expect Hamas to register a sweeping victory.

The Shin Bet chief also warned the cabinet that should the Israel Defense Forces begin targeting militants who are launching Qassam rockets, the Gaza Strip cease-fire would collapse within days because Hamas would renew its participation in attacks on Israel.

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According to Diskin, Hamas has ordered its operatives to hold their fire, and the ongoing rocket fire is being carried out by the Islamic Jihad. Diskin said Hamas militants could be dragged into renewed fighting between the IDF and Islamic Jihad. Nonetheless, Diskin said the IDF must retain its military capabilities and should know how to use if need be.

The Shin Bet chief added the problems Israel faces in the Gaza Strip, specifically the continued Qassam rocket fire and the strengthening of Hamas' forces, demand solutions that are more diplomatic in nature than military.

Foreign Minister Tzipi Livni asked Diskin whether Hamas has the ability to impose a halt to the rocket fire. Diskin responded that from a military standpoint the militant group is strong enough, but from an ideological standpoint Hamas will not act against the activities of another group. Hamas has never initiated such a step against another terrorist organization.

Defense Minister Amir Peretz told the cabinet it wasn't clear whether Israel's policy of restraint is actually strengthening the moderates in the PA, as is one of the goals of this policy.

Peretz said that the restraint may very well be "playing directly into the hands of those who walk around town and declare the violent actions they are taking against Israel." Peretz was referring to the popular stance that allowing militants to fire Qassam rockets at Israel without responding or taking preventive measures gives them the opportunity to become stronger and better armed.

At the end of the discussion, Prime Minister Ehud Olmert said that the polciy of restraint has a lot of advantages which must be preserved.

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