The Israeli government is going to be beating a hasty retreat soon. There can be no one on either side, who is rational, who doubts that. The question is on whose terms that retreat will be. A smart move would be to immediately yield to the Egyptians, very publicly, and absorb the coming attacks with excruciating discipline. Israel is not equipped to fight the fight it has picked. Force a Palestinian state quickly, be generous to it, and expect a certain level of violence until the Palestinian state is secure. The alternative will be quite extreme and is entirely predictable.
Jerusalem stabbing: One cop seriously wounded, two others suffer moderate wounds (Haaretz)
from the article: Egypt withdraws ambassador to Israel over policemen deaths