During his meeting with Egyptian President Hosni Mubarak in a Sharm el-Sheikh hotel on Monday, Defense Minister Ehud Barak reiterated Israel's commitment to the peace process, stressing that the continued terror emanating from Gaza can only lead to a full-blown escalation and even a military confrontation.

"Calm can only be achieved after a complete halt of all terror attacks, the curbing of weapons-smuggling and a full stop of all activity by terrorists and terror aficionados in Gaza," said Barak during the meeting, which was also attended by Egyptian Intelligence chief Omar Suleiman and Foreign Minister Ahmed Aboul Gheit.

Back Channels   Ramon: Negotiations with Hamas defy government policy / Roni Sofer   Vice premier admits Israel holding direct talks with Hamas on ceasefire, Shalit, says negotiations in violation of policy stating that Islamist group must first recognize Israel, renounce terror. 'We are not fighting a terror organization, but rather the terror state of Hamastan,' he says Full story   Barak and Mubarak later met privately for about an hour and-a-half. The defense minister said upholding the Israeli-Egyptian peace agreement was in both countries' interest, adding that Israel is committed to the "two states for two peoples" concept and wants to advance the negotiations with the Palestinians despite disagreements on the core issues, including Jerusalem and the refugees' right of return.

During the meeting Barak detailed the steps Israel is taking to improve the daily life of Palestinians residing in the West Bank, including support for local economic endeavors and easing restrictions on Palestinian movement.

  Referring to the situation in Gaza, the defense minister said the continuation of the rocket attacks on southern Israel "may expedite the deterioration process toward a military conflict".

Barak said Israel is demanding that talks on the release of kidnapped soldier Gilad Shalit be included in any future negotiations on a ceasefire, adding that Israel's reserves the right to continue operating against terror infrastructure in the West Bank.