President Shimon Peres is to spend the coming days trying to convince the leaders of Kadima and Likud to find a way of power-sharing in a national unity government.

Senior members of Kadima and Yisrael Beiteinu are already conducting quiet talks on a possible coalition of the three largest parties in the Knesset.

However, Likud is still trying to form a right-wing government as a first step before offering cabinet places to Kadima.

Israel will refuse to agree a new truce with Hamas unless the release of captured soldier Gilad Shalit is part of the deal.

The decision, approved unanimously by a cabinet vote on Wednesday, came as both Israel and Hamas appeared to toughen their negotiating positions.

The indirect talks over a ceasefire, mediated by the Egyptian government, reached an apparent impasse this week despite an earlier agreement by the Hamas leadership in Gaza to link a prisoner exchange deal to a two-year truce.

Hamas gunmen used last month’s conflict in Gaza to murder, kneecap and torture Palestinian political opponents suspected of collaborating with Israel, Amnesty International has reported.

The human rights organisation said they had learnt of at least two dozen cases during Operation Cast Lead in which men were abducted from their homes and later dumped with horrific injuries or found dead in hospitals.

The political turmoil in Israel and the pressure on the Hamas leadership following Operation Cast Lead have brought about the first major breakthrough in talks over the release of captured Israeli soldier Gilad Shalit.

Egyptian President Hosni Mubarak, the main broker between the two sides, has said that an agreement could be achieved by next week.

The Israeli defence establishment is readying itself for another round of warfare with Hizbollah following fears that the Lebanese movement is planning an operation against Israelis overseas and stepping up its efforts to rearm itself with weapons that would change the balance of power.

February 12 is the first anniversary of the assassination of Hizbollah’s operations chief, Imad Mughniyeh, in a car bomb in Damascus. Hizbollah leader Hassan Nasrallah last week blamed the Mossad for the assassination.

Pop star Annie Lennox has clashed with Tzipi Livni over the use of one of her hit songs in a YouTube film which promotes the Israeli Foreign Minister’s election campaign.

The Eurythmics singer objected to the song, I Saved the World Today, appearing as a soundtrack to a film endorsing Ms Livni’s bid to become Israel’s next prime minister as the leader of the Kadima party.

Ms Lennox was a leading campaigner against Israel’s action in Gaza and joined demonstrators on a rally in London three weeks ago.