Defense Minister Amir Peretz said Monday that Israel will not allow the continued strengthening and arming of Hamas and other terrorist organizations in the Gaza Strip.

Peretz made the statement during a visit to an Israel Defense Forces base in northern Gaza.

The defense minister also said that "we will not allow the continuation of arming, in a way that the Gaza Strip will turn into the Second Lebanon [War]. But no one should cause such an escalation by words, which will cause a crisis, causing a real war."

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He maintains that Israel is monitoring the northern border, and says that all provocation attempts to incite the area must stop. Peretz also said that Israel is making great attempts- both hidden and revealed- to bring the abducted IDF soldiers back.

Peretz also said the IDF had the authorization to hit Palestinian rocket squads.

"The IDF (Israel Defense Forces) has the authorization to deal with every attempt [by militants] to hit soldiers and every attempt to produce the means that can hit [sraeli] civilians," he said.

Peretz said in a government meeting Sunday that "Hamas is taking advantage of the calm to strengthen itself. Detailed estimates have been given to the IDF on plans to turn [the fence] into a chain of explosives."

The army's policy, Peretz said, is to operate decisively to counter the firing of Qassam rockets from the Strip before, during and after they are launched.

"There is also both open and covert activity against the threat of tunnels," he said.

The activity is intended to counter the laying of explosive devices targeted at security forces patrolling on the Israeli side of the fence, and to identify tunnels dug by militants to smuggle weapons or carry out attacks.

Hamas is also taking defense measures to prevent the IDF from making a deep incursion into the Gaza Strip.

This activity includes digging bunkers and underground tunnels within the inhabited area of the Strip, and improving the deployment of anti-tank missiles.

Military Intelligence chief Major-General Amos Yadlin said in a government meeting Sunday that certain Hamas leaders are not pleased with the Arab peace initiative, and that the group's armed wing has returned to operation.

Yadlin referred to the shooting injury suffered two weeks ago by an electrical worker near Nahal Oz, and the renewed laying of explosive devices, as evidence of that activity.

Yadlin also cited remarks made by Palestinian Prime Minister Ismail Haniyeh that if the international aid embargo on the Palestinian Authority is not lifted within three months, a third Intifada will erupt.

IDF prepared for possible major incursion into Gaza Strip
The IDF last week completed its preparations for a possible major incursion in the Gaza Strip, including special training for most of the units that might be involved and an exercise at the command headquarters level. But military sources say the government prefers to avoid an escalation with the Palestinians.

At the end of last year, Chief of Staff Dan Halutz ordered that preparations be advanced for a possible action in the Gaza Strip that would use large numbers of ground forces. Infantry, armored units, artillery and intelligence units underwent training, mainly at the Tzeelim base in the South, and the Southern Command headquarters held an exercise last week.

The scenario for launching the operation was large-scale rocket fire on western- and northern-Negev communities and the abduction of soldiers. In the exercise, the Israel Air Force also responded against Palestinian terror targets.

A security source said last week that Israel could not avoid responding in the long term as terror organizations grew stronger in the Strip. Intelligence assessments say both Hamas and Islamic Jihad have rockets with a range of 15 kilometers, but efforts are being made to significantly increase their range.

In the first response of its kind in recent months, the air force last week hit a rocket launching team about to fire a rocket from the northern Gaza Strip. One Islamic Jihad activist was killed and three were injured.

The IDF also received approval to operate in a small area on the Palestinian side of the fence around the Gaza Strip to prevent the placing of explosive devices against Israeli forces patrolling the border, and to pinpoint tunnels for weapons smuggling.

Shin Bet security forces head Yuval Diskin said two months ago that at least 10 such tunnels had been dug in the area of the fence.

Hamas is also digging tunnels, as well as bunkers in settled areas of the Gaza Strip, to stymie a ground attack. It is also improving its array of anti-tank missiles.

The IDF believes the chances of such an operation are slim because of government concerns in light of the poor outcome of the war in Lebanon. In an interview in Friday's Haaretz, Prime Minister Ehud Olmert said such an action is not "the first thing I seek to do."