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The probability that Israel will fall victim to a wave of Palestinian terrorism in the near future on the scale of an intifada remains low, the head of the Shin Bet security service told lawmakers in Jerusalem on Tuesday.

In an appearance before the Knesset's foreign affairs and defense committee, Yuval Diskin said Hamas is clamping down on rocket attacks against Israel though it continues to amass a stockpile of anti-aircraft missiles and rockets that can reach the country's major population centers.

Diskin said the Islamist organization, which ousted rival Fatah in a June 2007 coup in the Gaza Strip, continues to dig tunnels underneath the Gaza-Egypt border.

"Hamas will decide when to employ terrorism against Israel," Diskin said.

The Shin Bet chief also told members of Knesset that at this stage, the probability that a third intifada would erupt is low.

According to Diskin, a wave of Palestinian terrorism against Israeli civilians would only come about in response to provocative events, like vandalism or damage to a mosque; the appointment of jailed Tanzim leader Marwan Barghouti to a senior position in the Palestinian Authority; or the absence of a diplomatic process.

Diskin noted that there was a significant expansion of activities by jihadist Islamic organizations in the Gaza Strip.

The Shin Bet chief said Israel's decision to freeze construction in West Bank settlements falls short of meeting Palestinian preconditions for renewing peace negotiations.

"From the Palestinian point of view, the government decision [to freeze settlements] does not represent a basis for jumpstarting the diplomatic process," Diskin said. "In order for there to be a basis, there also has to be a statement about Jerusalem."

"Today there is a complete lack of trust between the Palestinian Authority on one hand and the U.S. and Israel on the other," the Shin Bet chief said. "Abu Mazen is still adhering to negotiations and he is looking for a way to save face, but there has yet to materialize a way for him to do that."

"From Abu Mazen's point of view, the precondition is the resumption of diplomatic negotiations from the point at which they broke off during talks with [former prime minister Ehud] Olmert, but he wants the same terms which he presented, namely the same understandings he reached with the previous prime minister. From his standpoint, this is the key condition on this matter."

Diskin said on Monday that closing the Shalit deal will be a great achievement for Hamas but it will not bring down Abbas.

Speaking to Israeli ambassadors gathered at the Foreign Ministry, Diskin said the Shin Bet security service does not believe a third intifada is about to break out in the territories at this stage.

"The Shalit deal would be a slap in the face for Abbas and a great public opinion achievement for Hamas," Diskin said. He was answering Dorit Shavit, the Foreign Ministry's Deputy Director General for Latin America, who asked how the Shalit deal would effect Abbas' status.

"But on the other hand, Abbas realizes this is going to happen and is preparing himself for it. In any case, it won't topple him," he said.

Diskin did not refer to the release of Palestinian prisoners in exchange for Shalit, but hinted at his position on releasing the former Fatah secretary in the West Bank, Marwan Barghouti. "Barghouti was the spirit behind the second intifada, not Arafat as people tend to think," he said. "The problem is that the intifada spun out of his control."

Diskin spoke about the present situation in the Palestinian Authority and the shaky relations between Hamas and Fatah. The West Bank and Gaza Strip are more divided today than ever before, he said.

"Abbas is weak but there is no substitute for him at this stage," he said. "Abbas painted himself into a corner because he thought the Americans would bring him everything he wanted on a silver platter, and if there's no one to extract him from that corner he may really resign," he said.

Diskin mentioned three possible heirs for Abbas. The first is Ahmed Qurei (Abu Alaa), who received a harsh blow in Fatah's primary election and is not very popular today. The second is Prime Minister Salam Fayyad, who, not being a Fatah man, would find it difficult to succeed Abbas. The third is a senior Fatah official in Tunis, Muhammad "Abu Maher" Ghneim, a former opponent of Abbas who has since grown closer to him. "He is seen as not involved in any corruption," Diskin noted.

The Israeli ambassadors also visited the President's Residence Monday and heard a lecture from President Shimon Peres.

"I heard there are people who say the Oslo agreement was bad," Peres said, alluding sarcastically to Foreign Minister Avigdor Lieberman's calling the Olso Accords "a fantasy" and "an illusion."

"I think the Oslo agreement was good," Peres said.

Peres also blasted - indirectly - Lieberman's policy to have the Foreign Ministry launch an aggressive public relations campaigning against anyone who criticizes Israel.

"The problem isn't public relations," he said. "The problem is the policy. Policy can be the best PR and if the peace talks are resumed all the public relations problems would be solved," he said.