What is happening now in Gaza? Here's my understanding.
Both Hamas and Israel rejected the Security Council resolution. Hamas made the decision to brave an invasion because the status quo ante, living under a blockade with Israel attacking when it felt like, was intolerable. After the terrible destruction suffered by Gaza, accepting a cease-fire that is no better than that status quo ante would be close to unthinkable. Israel is happy to accept a "cease-fire" on the same terms, but it cannot so far get one. It is playing poker with Egypt in an attempt to replace the blockade with an effective Egyptian responsibility for monitoring the borders.
This can not last long, as Aluf Ben notes, the crucial problem for Israel is the mobilization of the reserves. Keeping the mobilization is both economically and politically costly, and therefore we should assume that the if the Olmert cabinet decides to press on, effectively seeking to retake Gaza's cities and camps, the decision will have to be taken in no more that two or three days. Barak and Olmert had said from the outset that this wasn't their goal and there is no reason to doubt it. The political cost in terms of soldiers killed is not appealing and the result, a military occupation and sovereign responsibility for the population, is undesirable to Israel. With its dense population and puny area, Gaza already fulfills the Israeli interest in packing Palestinians into as small as possible Bantustans and letting them rot there. Israel therefore has nothing to gain for reoccupation. Why then does Israel threaten to do just that? I think Aluf Benn gives the best account:
Israel is proposing a deal to Egypt that also amounts to a threat: If you take action to halt the arms smuggling, we will continue to see to the supply of food and fuel for Gaza. If you refuse, we will invade Gaza with all guns blazing - and you're liable to find 100,000 or 200,000 Palestinian refugees fleeing our tanks, breaching the border and pouring into Sinai. Then Israel will pull out, close the crossings, and Gaza and all its problems will be your headache. ( Haaretz, Benn, Jan. 9, 2008 )By now, I'm sure few people reading JSF are shocked by the repugnancy of these calculations. But Israel has no red lines. A game of chicken has its own dynamics and we cannot therefore rule out that this is what will happen. Egypt might continue to refuse and Israel will feel compelled to realize its threat so as not to appear as "the chicken." The only good news is that it appears both Livni and Barak would prefer folding. They have to fight an election. Barak already got his boost from the murder of close to 800 Palestinians, which plays well to the home audience. From here it can only go downhill for him. Olmert, according to Benn, is the one holding the cards to his chest. This is in character. Olmert likes gambling. But more than that it reflects the political reality that Olmert has no skin in the game in the next elections.
Olmert's prefered scenario is that Mubarak folds and assumes the role of policing Gaza's borders for weapon smuggling. That is the best scenario for Israel. The humanitarian situation will improve just enough to reduce the pressure on Israel. Hamas will lose the prospect of growing its arsenal and therefore Israel will be again free to conduct military incursions at will, for the price of a few insignificant Qassams. It wouldn't matter if there is or isn't a cease-fire. (of course, this scenario will keep getting messy in different ways, but at least for the short term this seems to be what israel wants.)
Mubarak would be the loser, making Egypt look like a Western stooge even more than it already does (if that is possible). He is under immense international pressure to accept the border policing job, and various countries are offering to help him. But Hamas has not minced words about the repercussions:
...this resolution does not concern us unless someone comes to enforce it on the ground. When it is enforced on the ground, whatever party which tries to enforce it will have to deal with..[Hamas] (Haaretz )
Hamas might prove less determined in practice. But whether Mubarak refuses or not depends probably on how much he fears that being in charge of repressing and killing Palestinians will be more than even Egypt's fabled security apparatus can take.
If Mubarak holds and Israel folds, Israel will have to decide how much restriction on its actions it is willing to accept for an official truce. My guess is that this depends solely on the remaining Hamas ballistic capabilities. The more and better rockets Hamas retains, the better the cease-fire will be. But Israel has an apocalyptic fear of accepting real limitations on its use of military force that is ingrained in its decision making for six decades. International pressure in the next few days may make the difference between a truce and a slaughter that will make the last 12 days pale in our memory.
(and if that isn't worrisome enough, read this )