The Israeli-occupied territories of the West Bank (including East Jerusalem) and Gaza are home to 2.3 million indigenous Palestinians and 280,000 Jewish settlers. To the extent that Israel continues to exercise authority over the territories, it assumes much responsibility under international law for public order and safety, the rule of law and the rights of the population.

The election of a Hamas-led government in January 2006 by Palestinians fed up with the long-ruling Fatah Party's corruption and its inability to move the political process forward led Western countries to impose strict economic sanctions on the Palestinian Authority in an attempt to bring about its recognition of Israel, acceptance of past peace agreements and renunciation of violence. Meanwhile, violence between Hamas and Fatah factions escalated during 2006, especially in Gaza, as both adjusted to their new roles in government and opposition, respectively.

Following the abduction of an Israeli soldier by Palestinian militants and repeated and indiscriminate firing of home-made missiles from the occupied territories into Israel, Israel launched a new military incursion into Gaza on 25 June 2006. Israeli forces bombed Gaza's only independent power station, cutting 43 per cent of the territory's electricity supply. According to an Israeli human rights organization, B'Tselem, through October 2006, over 375 Palestinians had been killed in the sustained assault, including 199 civilians. A tenuous ceasefire in November 2006 provided some hope that negotiations might soon begin.

In the West Bank, the separation barrier that Israel began building in 2002 with the stated intent to enhance its defences against terrorist attacks had reached a length of 670 km by late 2006. The wall carves off 10 per cent of the West Bank to the Israeli side, including settlements on Palestinian land, and in July 2004 the International Court of Justice found that it gravely infringed Palestinian rights. 200,000 Palestinians caught on the western side of the wall are effectively imprisoned between the hours of 10 pm and 6 am, denied entry if they miss the curfew, and denied access to emergency services during these hours. UN High Commissioner for Human Rights Louise Arbour remarked, in November 2006, 'Here you have one people balancing their right to security against another people's right to freedom.' Palestinian freedom of movement between the West Bank and Gaza, as well as the passage of goods at Karni crossing, also remained curtailed, with drastic economic consequences.

In July 2005 Israeli law-makers barred Palestinians in the occupied territories from seeking compensation for deaths, injury or damages caused by Israeli security forces since the beginning of the Second Intifada in September 2000. Israeli and Palestinian human rights organizations filed a challenge to the law before the Israeli Supreme Court in September 2005. The Court rejected part of the law in December 2006, ruling that Palestinians could seek redress for damages stemming from non-combat military operations.

Just under 2 per cent of indigenous Palestinians in the occupied territories are Christian, and these reside largely in Bethlehem, Jerusalem and Ramallah. Following the Pope's controversial remarks on Islam in September 2006, seven churches in the Palestinian territories were set on fire. While Hamas leader and Palestinian Authority Prime Minister Ismail Haniya condemned the Pope's statement, he also denounced the attacks on Christian churches in the occupied territories.

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