Israel killed 116 Palestinians in Gaza last week in an orgy of air strikes and ground incursions, turning the besieged and starved Strip into an unbearable inferno. Hundreds more Palestinians were wounded. At least half the dead and wounded were civilians, including many young children.

So great was the catastrophe that Egypt, under pressure from an enraged public opinion, opened the Rafah crossing into Sinai and sent 27 ambulances to shuttle scores of badly wounded Palestinians to hospital in Al Arish.

What is to be done? The international community has expressed its usual alarm and outrage at Israel’s appalling behavior — with protests coming from the U.N. Secretary General and the Pope among many others, while Saudi Arabia has compared Israel’s actions to Nazi war crimes. But Prime Minister Ehud Olmert remains defiant. No one, he declared, can teach Israel morality.

Israel’s dilemma is acute. Its generals and civilian hawks huff and puff, threatening to destroy both Gaza and Hamas once and for all, yet they know full well that reoccupying the Strip would entrap the IDF in a costly and probably unwinnable guerrilla war — as in the 2006 war against Hizbullah in Lebanon — and might not even manage to put an end to the home-made Qassams.

The obvious alternative would be for Israel to sit down and talk. Hamas’ oft-repeated offer of a long-term mutual ceasefire remains on the table. But Israel utterly rejects any such course. Olmert and his generals have evidently not yet learned the Churchillian adage that “jaw jaw is better than war war.”

Israel’s way out of its dilemma has been to carry out limited ground incursions, accompanied by heavy air strikes — to surge into Gaza with tanks and planes, terrorize the population, smash major locations, kill as many people as possible, seize suspects and then withdraw. This was the pattern of last week’s operation.

This latest attack was exceptional only in its unusual scope and ferocity. Air strikes against Gaza by F16 and Apache helicopters are a daily occurrence. Israeli drones are constantly in the air over the Strip. Palestinians continue to be killed regularly, adding more victims to the nearly 900 Palestinians Israel has massacred since Hamas won the democratic elections for the Palestinian Legislative Council in January 2006.

In contrast, only a dozen Israelis have died in the past six years — including one student last month — as a result of Palestinian attacks from Gaza. The Qassam rockets have undoubtedly made life extremely disagreeable in Sderot, Ashkelon and other Israeli towns within range of Gaza’s rockets, and many inhabitants have been treated for shock. But their suffering, regrettable as it is, bears no relation to the mass killings and huge destruction Israel has inflicted — and continues to inflict — on Gaza.

Even the United States has gone so far as to “encourage Israel to exercise caution,” although it has, as usual, blocked a draft Security Council resolution condemning Israel for killing civilians,

Britain’s former Prime Minister, Tony Blair, now the chief representative of the Quartet (U.N., U.S., E.U. and Russia), has always been careful not to ruffle feathers in either Israel or the United States. But last week’s bloody events persuaded him to issue a statement, which one might describe as almost balanced.

The death of the Israeli in Sderot, he said, was “utterly to be condemned,” but he also deplored as “absolutely tragic” the death of Palestinian civilians, adding that everything possible should be done “to avoid the loss of innocent Palestinian life.” In other words, Israel was free to continue its attacks “in self-defense,” but should be careful about inflicting excessive collateral damage.

Understandably enough, Blair’s attention is clearly more focused on his job as an advisor to JP Morgan, the U.S. investment bank —which is reported to be paying him up to $5m a year — and on his lectures at $150,000 a time, than on the festering problems of Gaza. As the Quartet’s chief envoy, he has so far been less than useless.

But Blair may now have a chance to redeem himself. Reliable sources report that, encouraged by his statement, Hamas sent Blair a message last week urging him to press Israel to accept a mutual ceasefire. These sources report that this important message was cleared with Khaled Meshaal, the Hamas political supremo in Damascus, before being conveyed to Blair’s office by a high-level intermediary.

A novel feature of the offer is that this time Hamas is proposing a cease-fire between Israel and Gaza alone, with no mention of the West Bank. Previous Hamas offers always stated that attacks on Israel would cease if Israel, in turn, stopped all its raids, armed incursions, “targeted assassinations” and so forth in both Gaza and the West Bank.

Why is Israel so adamantly opposed to talking to Hamas?

The answers are numerous. First of all, talking to Hamas would confer recognition on the Islamic resistance movement, whereas Israel has moved heaven and earth to get the United States and even the divided and timorous E.U. to declare Hamas a “terrorist organization.”

Secondly, if Israel were to accept a ceasefire, this would amount to creating a situation of mutual deterrence with Hamas, which Israel adamantly refuses. It wants its enemies to surrender, while it retains the freedom to kill at will. “We will be the ones who create the equations, and not Hamas,” Olmert declares.

Thirdly, Israel knows that, looking beyond the ceasefire, Hamas would insist on far stiffer peace terms than those of the very weak Palestinian Authority and its hapless president, Mahmoud Abbas. Abbas has renounced all forms of resistance. He has embraced George W. Bush’s hollow Annapolis “peace process” and has put himself entirely in Israel’s hands. But he has failed to persuade Olmert to dismantle a single illegal outpost, or a single West Bank checkpoint, let alone halt the steadily expanding settlements in Arab East Jerusalem and in the large Israeli blocks, intended to sever the city from its Arab hinterland.

Fourthly, the Sephardic movement Shah has already put Olmert on notice that it will quit the coalition and bring down his government if he so much as discusses with the Palestinians core issues such as Jerusalem, borders and refugees. In Israel’s present climate of hysteria, Olmert would probably not survive any sort of deal with Hamas.

Finally, even though bashing Gaza alarms the world and risks triggering suicide bombings and other revenge attacks — and even the possibility of a third intifada — aborting the peace process suits Israel well enough.

Far from considering any withdrawal to the 1967 borders — which is the main Arab condition for peace — Israel seems determined on the contrary to consolidate its control over the whole of historic Palestine, by means of increased settlement activity, military closed zones and the sheer coercion of a captive population.

The question is whether such a cruel policy is sustainable in the long term. How much better would it be for Israel to have a peaceful and prosperous Palestine on its borders, serving as its key to peace with the entire Arab world?

In the meantime, Hamas is still waiting for an answer to its message from Tony Blair.

Patrick Seale is a leading British writer on the Middle East. © 2008 Patrick Seale