Israeli police are investigating a rampage by settlers in a Palestinian village in the West Bank on Saturday which PM Ehud Olmert called a "pogrom".
Mr Olmert, who is about to step down, called the attack by about 100 settlers on Asira al-Qabaliya "intolerable".
It was filmed by human rights groups and came after an intruder stabbed and wounded a child at Yitzhar settlement.
But police have not arrested any of the settlers who were filmed. Four people suffered gunshot wounds in the attack.
Police have reportedly approached human rights group B'Tselem asking for the home video footage capturing Yitzhar settlers attacking the village with live bullets and stones.
In the footage, Israeli soldiers are present at the scene but do not take any action to prevent the violence and destruction of Palestinian property.
Mr Olmert said at what could be his last cabinet meeting: "This phenomenon of taking the law into their own hands and of brutal and violent attacks is intolerable... There will be no pogroms against non-Jewish residents."
A committee of pro-settlement rabbis praised the "courage and heroism" of the Yitzhar settlers, saying their reaction was in accordance with Jewish law, the Haaretz newspaper reported.
The once-hawkish Mr Olmert also spoke of Israel giving up parts of the West Bank to reach a peace deal with the Palestinians.
"The idea of a 'Greater Israel' is over. There is no such thing. Whoever says so is just misleading himself," Mr Olmert said, according to officials at the meeting.
The meeting discussed a plan to pay Israelis to leave settlements in the West Bank that are on the east side of the barrier Israel is building in and around the territory.
On Monday, Mr Olmert told a parliamentary committee that every day that passed without a peace agreement with the Palestinians was a day that Israelis may come to regret.
Mr Olmert said there would be painful consequences if the opportunity to reach a deal soon was missed.
The prime minister faces possible criminal charges in corruption investigations and, although he denies wrongdoing, he has promised to resign after his Kadima party holds an election to replace him.
Wednesday's leadership vote could be followed by protracted talks to form a new government, and Mr Olmert may stay on as caretaker premier.
About 450,000 Jews live in the West Bank and East Jerusalem in settlements considered illegal under international law, although Israel disputes this.
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