We have deep concerns about the current situation, its effects on the Palestinian and Israeli people, and the consequences for the Middle East peace process. The escalation in violence since the 25 June attack at the Kerem Shalom crossing has caused great suffering on both sides. The most violent day of the conflict since Israeli disengagement from Gaza last year was 6 July, with 21 Palestinians and one Israeli solider killed.We condemn the 25 June attack and call for the immediate and unconditional release of Corporal Shalit. We also condemn the continued rocket attacks on Israeli towns such as Sderot and Ashkelon, including the rocket that hit a school in Ashkelon on 4 July. We have called on the Palestinian Authority to prevent all terrorist attacks, including these rocket attacks, and to work for the release of Corporal Shalit. We welcome the work that President Abbas is doing to achieve this.

While Israel has the right to defend itself and to secure the release of Corporal Shalit, its actions should be proportionate and in accordance with international law, as we, the G8 and the EU have made clear. We call on Israel to exercise restraint and to do everything possible to avoid civilian casualties. The Israeli Prime Minister has said that Israel has no intention of reoccupying Gaza.

We have serious concerns regarding the current humanitarian situation in Gaza. Israeli military actions have targeted key roads and bridges and have disabled the Gaza power station and water supplies. The UN reported on 28 June that 40 per cent of Gaza was without power and 130,000 people were without water. Restoring electricity and water supplies and access for humanitarian organisations is a vital priority. The Israeli Cabinet agreed on 2 July to take steps to ease the humanitarian situation, including by opening the Karni commercial crossing point between Gaza and Israel for 150 trucks a day carrying food, fuel and medical supplies, and by providing power through Israeli grids. We urge Israel to take further such action and to allow the full provision of basic services to the Palestinian people.

We also continue to have concerns about the detention of members of the Palestinian Government and Legislature on 29 June. Those detained should be accorded their full legal rights and be either charged or released.

Since the crisis began, we have been in close contact with the Israeli Government and with Palestinian President Abbas. My Right Honourable Friend the Foreign Secretary spoke to Israeli Foreign Minister Livni and President Abbas on the first day of the crisis, 25 June, and again on 6 July. Our ambassador in Tel Aviv, consul general in Jerusalem and officials in London remain in close contact with both sides. We are also in close contact with the quartet members, as well as with Egypt, Saudi Arabia and Turkey. We fully support Egyptian efforts to mediate between Israel, the Palestinian Authority and the militants currently holding Corporal Shalit, and we have offered our assistance. Egypt plays a key role in the peace process and we will continue to work with it. We have also pressed Syria to use its influence on Hamas. I can assure the House that the UK will continue to work to resolve this crisis.

My Right Honourable friend the Prime Minster has made clear our commitment to continue helping the Palestinian people. Although donors have stopped direct budgetary support to the Palestinian Authority, we continue to provide other support directly to the Palestinian people.

On 17 June, the quartet endorsed the temporary international mechanism. The mechanism will ensure that basic healthcare continues to be provided in the Occupied Territories. It will also work to provide the poorest segments of Palestinian society with basic needs allowances and it should help to ensure the uninterrupted supply of utilities, including fuel. First payments through the mechanism should be made this month. The UK will contribute up to £12 million.

The UK has a strong record of support for the Palestinian people. On 25 April, the Department for International Development announced a £15 million payment to the UN Relief and Works Agency. The UK has given £147 million to the Palestinian people since 2001. We also contribute through the EU, which is the biggest donor to the Palestinian people.

While we need an urgent end to the current crisis, real peace can come only through a lasting settlement. As my right Honourable Friend the Prime Minister has made clear, our priority is negotiations. These are manifestly the best way to move this process forward. It is the role of the international community to give negotiations the best chance of success. We welcome the commitment of Prime Minister Olmert and President Abbas to negotiations and urge both sides to resume talks as soon as possible. This will require great effort and courage from both sides.

We were seriously concerned about the situation on the ground even before the current crisis. We hope that Israel can ease restrictions on movement and access to Gaza and the West Bank by implementing the15 November agreement. This includes dismantling checkpoints and road blocks.

We also have concerns about the routeing of the barrier and Israeli settlement activity. We understand why Israel wishes to build the barrier, but it needs to be on or behind the green line; it is illegal for it to be built on occupied land. We have raised our concerns on many occasions with the Israeli Government and we will continue to do so.

The road map is clear that Israel should freeze all settlement activity, including the natural growth of existing settlements, and dismantle all outposts built since March 2001. Settlement building is contrary to international law and is an obstacle to peace. We welcome the Israeli Government's commitment to dismantling outposts and hope that they will act as soon as possible.

We have also raised our concerns with the Government of Israel concerning Israeli policies in Jerusalem. These policies include the routeing of the barrier in and around Jerusalem; settlement activity in and around east Jerusalem; and, increasingly, restricted access to Jerusalem for Palestinian residents who have blue Israeli identity cards but who live east of the barrier. These practices fuel Palestinian anger, threaten to cut off east Jerusalem from the West Bank and make it more difficult for there to be a viable Palestinian state.

There is also much that the Palestinians need to do. It is essential that the Palestinian Authority makes every effort to prevent terrorism, as set out in the road map. We will continue to work with President Abbas to take the peace process forward. We welcome President Abbas's recent efforts to improve the security situation in Gaza and to promote intra-Palestinian reconciliation through the national dialogue, and we welcome his commitment to negotiations. Our policy on Hamas remains unchanged. We recognise Hamas's democratic mandate as a result of free and fair elections, but with this mandate comes responsibilities. It is essential that the Hamas-led Government commit to the 30 January quartet principles: renunciation of violence; recognition of Israel; and acceptance of previous agreements and obligations, including the road map. Hamas needs to start implementing these principles and to make clear the path that it intends to take. If it does this, we are ready to take the peace process forward with it.

Our goal remains a negotiated two-state solution, which is best achieved through the road map. We must all work to find a way through the current crisis to achieve a just, viable and lasting peace.