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Japanese Prime Minister Junichiro Koizumi's first visit to Israel yesterday was overshadowed by the Hezbollah attack in the north.

Prime Minister Ehud Olmert said at a press conference yesterday that he had considered canceling the meeting with his Japanese counterpart, but decided to hold it anyway. "I reached the conclusion that it was not appropriate to cancel it, due to the special circumstances of our relationship, Japan's international importance, and the unique importance of Prime Minister Koizumi, who is a world leader," said Olmert.

Koizumi stressed the benefits of restraint, saying: "I understand your feelings, an eye for an eye, but it's important to maintain hope for the long term - and restraint is also important."

"Our response will be very restrained," Olmert said, "and very, very, very painful."

Koizumi is slated to present a Japanese aid package to the Palestinians this morning, during a meeting with Palestinian Authority Chairman Mahmoud Abbas. The aid is slated to go to international organizations in the territories rather than to the Hamas government, and is slated to encourage Palestinian employment and the construction of new headquarters for the PA chairman in Ramallah.

Meanwhile, Koizumi met with Olmert and Vice Premier Shimon Peres yesterday to discuss Peres' plan for the economic development of the Jordan Valley and the Arava region, a project dubbed the "Corridor of Peace and Prosperity." Japan is participating in the project, along with Israel, the Palestinian Authority and Jordan.

Koizumi said Japan was prepared to fund World Bank research on the digging of a canal from the Gulf of Eilat to the Dead Sea.