By Adam Entous and Ari Rabinovitch
JERUSALEM (Reuters) - Prime Minister Ehud Olmert said onSunday the Israeli army had a "free hand" to target anyone inthe Gaza Strip, particularly ruling Hamas Islamists, to bringan end to cross-border rocket fire at the Jewish state.
Olmert also said the goal of peace talks with PalestinianPresident Mahmoud Abbas was to reach an understanding on "basicprinciples" for a Palestinian state by the end of 2008, ratherthan a full-fledged agreement.
Olmert said Abbas had agreed to postpone talks on thefuture of Jerusalem until the end of the negotiating process, amove that could anger Palestinians but help Olmert holdtogether his fragile coalition government for now.
"I don't know if we will be able to reach an understandingwith the Palestinians. I hope we will. We'll do everything inour power to. But we will not start with the issue which is themost difficult," Olmert said of Jerusalem.
Israel asserts that it can maintain parallel tracks withthe Palestinians, one aimed at reaching a statehood agreementwith Abbas and the other at breaking Hamas's hold on the GazaStrip.
Olmert has so far been wary of launching a major groundoperation in Gaza, which Hamas Islamists seized by force inJune after routing Abbas's more secular Fatah faction.
But the Israeli leader faces growing domestic pressure toact against the rocket salvoes, especially after Hamas claimedresponsibility for a suicide bombing that killed a woman and arocket attack that cost an 8-year-old boy part of his leg.
Some members of Olmert's cabinet have urged the army tostart assassinating Hamas's political leaders.
"We have completely a free hand to respond, to reach outand to attack everyone (who has) any kind of responsibility onbehalf of Hamas," Olmert told Jewish-American leaders inJerusalem. "That applies to everyone, first and foremostHamas."
Israeli forces killed three Palestinian militants and acivilian during a ground operation in the Gaza Strip on Sunday.
Frequent Israeli air strikes and ground incursions into thecoastal territory have killed some 300 Palestinians in the pastyear, including dozens of civilians, but failed to preventrocket fire, which killed two Israelis in the same time period.
Shunned by the West for refusing to renounce violence afterbeating Abbas's Fatah faction in a parliamentary election twoyears ago, Hamas says it would cease fire if Israel stops itsmilitary operations in Gaza and the occupied West Bank.
Hamas is also demanding an end to an Israeli-led blockadethat has cut supplies to the territory's 1.5 million people.
BASIC PRINCIPLES
Olmert said he hoped to be able to sign an "understanding"with Abbas before the end of 2008 that would cover the "basicprinciples" for statehood, including borders, the fate ofPalestinian refugees, as well as Jerusalem.
His comments appeared to run counter to those made by U.S.President George W. Bush last month in a visit to the occupiedWest Bank. Bush set the goal of trying to get both sides tosign a "peace treaty" before his term ends next January, thoughhe did not spell out what that might entail.
Olmert's government has already lost one of its right-wingcoalition partners over the peace talks.
The ultra-religious Shas party has also threatened to boltif the talks focus on Jerusalem.
"We will postpone dealing with Jerusalem to the last phaseof the negotiations," Olmert said, stressing that Abbas had"accepted" his suggestion.
Ahead of a planned meeting between Olmert and Abbas inJerusalem on Tuesday, visiting French Foreign Minister BernardKouchner warned that he saw no real sign of progress since aU.S.-sponsored peace conference in November launched thestatehood negotiations. He called the situation dangerous.
Palestinian leaders have voiced increasing frustration thatIsrael has yet to meet its commitments under a 2003 "road map"peace plan that calls for halting all Jewish settlementactivity and for uprooting outposts built without governmentauthorisation in the occupied West Bank.
Israeli leaders say the Palestinians have yet to fulfiltheir own road map commitment to rein in militants, includingthose in the Gaza Strip.
While Olmert has imposed a de facto halt to newconstruction in settlements in the West Bank, he has not calledoff building in and around Arab East Jerusalem, whichPalestinians see as capital of a future state.
(Additional reporting by Brenda Gazzar, Editing by RichardWilliams)