JERUSALEM — The Jewish year 5767 saw a widening of the rift between moderates and radicals in the Middle East, which in turn produced a paradox for Israel: The rift heightened both a chance for peace between Israel and the moderates and a threat of war between Israel and the radicals.

The year also saw dramatic developments in Israeli domestic politics: Prime Minister Ehud Olmert struggled to hold onto power in the wake of a scathing report on his performance in the second Lebanon war; former Prime Minister Ehud Barak was re-elected leader of the Labor Party; and President Moshe Katsav was forced to resign over a sex scandal.

The defining event for Israeli-Palestinian ties was the bitter Gaza Strip showdown between Fatah-led moderates and Hamas-led radicals. In a week of cruel fighting in June, Hamas forces crushed their Fatah rivals, carrying out summary executions, parading ill-clad captives and hurling rival militiamen from rooftops.

The end result was Hamas in sole control of Gaza, but supplanted in government by a new Fatah-led administration under President Mahmoud Abbas and Prime Minister Salam Fayyad. The Abbas government was ensconced in the West Bank, operating from Ramallah in the name of all Palestinians and recognized by Israel and most of the international community. Ironically, Fatah’s defeat in Gaza made it possible for Israel to circumvent the radicals and deal directly with the moderates in Ramallah.

Israel, the United States and the Arab moderates were quick to size up the peacemaking potential in the new situation. On June 25, just 10 days after the Hamas takeover in Gaza, the leaders of Egypt, Jordan and Israel came together with moderate West Bank Palestinians to launch a new Israeli-Palestinian peace initiative at a summit in the Egyptian resort town of Sharm el-Sheik.

Three weeks later, in a major policy statement, U.S. President George Bush called for a regional peace parley, under American auspices, to be attended by Washington’s moderate Middle Eastern allies.

In early August, U.S. Secretary of State Condoleezza Rice visited the region to set up the peace meeting and make sure key players like the Saudis would participate. Rice repeated her insistence that Israel and the Palestinians deal with core issues — borders, refugees and Jerusalem — for a final peace deal.

In the wake of her visit, Olmert and Abbas began a series of meetings designed to produce a framework for a final-status agreement to be presented at the regional meeting. Palestinian spokesmen, impressed by the show of American resolve, said that for the first time in years they believed the establishment of a Palestinian state was possible.

There were other reasons for optimism: former British Prime Minister Tony Blair, a highly respected mediator, entered the arena, and Israel and moderate Arab states agreed to negotiate on the basis of a peace plan reaffirmed by the Arab League in Riyadh, Saudi Arabia in March 2007.

But with Hamas in control in Gaza, there were questions as to how far Abbas could go in peacemaking with Israel. He also was under considerable Arab pressure to reconcile with Hamas, along the lines of a power-sharing agreement the two sides had reached in Mecca in February.

Moreover, as the United States stepped up its efforts to promote a more stable regional order, Iran and its radical allies moved to undermine it.

Iran smuggled rockets through Syria, earmarked for its Hezbollah proxy in Lebanon, replenishing stocks depleted in the fighting with Israel the previous summer. It also reportedly helped bankroll large weapons deals between Syria and Russia.

In mid-July, when Syrian President Bashar Assad again sounded peace overtures to Israel, Iran’s President Mahmoud Ahmadinejad flew to Damascus to make sure nothing would come of them. While in the Syrian capital, Ahmadinejad warned of a “hot summer” in which the enemies of Islam would be defeated.

Iran also trained and armed Hamas fighters, helping them overcome Fatah in Gaza. According to Israeli intelligence, the Iranian aim was to surround Israel with a missile cordon from Tehran to Gaza, primarily to deter any Israeli pre-emptive strike against Iran’s nuclear weapons program.

To offset growing Iranian power, the United States planned huge arms supply packages to its moderate allies: $20 billion in sales to Saudi Arabia over the coming decade; $13 billion in military aid to Egypt; and $30 billion to Israel.

Bush assured Olmert during a visit to Washington in June that the Saudi weapons would not be deployed close to the Israeli border and that the United States remained committed to maintaining Israel’s technological edge.

Following the poor performance of its ground forces in the second Lebanon war, Israel decided on heavier military spending of its own.

In late July, the government allocated an additional $11 billion for the next 10 years. Some of it would be devoted to enhancing Israel’s long-range strike capacity and some to enlarging the ground forces by two divisions.

The Israel Defense Forces’ failure to win a decisive victory in the war cost Chief of Staff Lt.-Gen Dan Halutz and Defense Minister Amir Peretz their jobs. Halutz, an air force man, was replaced in mid-February by Lt.-Gen. Gabi Ashkenazi, a seasoned infantry and armor commander. Peretz, after losing the leadership of the Labor Party to Barak in June, was ousted at defense by the former prime minister.

Throughout the year, Olmert had been under fire for his widely perceived mismanagement of the campaign against Hezbollah. After the Winograd Commission, set up to investigate the war, added its harsh criticism in late April, his approval rating plummeted to less than 3 percent and most pundits believed he would be forced to resign.

But Olmert displayed considerable political skill. In the report’s immediate aftermath, he moved quickly inside his own Kadima Party to nip in the bud a potential leadership bid by Foreign Minister Tzipi Livni. Six months earlier, in October 2006, he had greatly strengthened his chances of political survival by bringing Avigdor Lieberman’s far-right Yisrael Beiteinu Party into the governing coalition.

In the short-term, his inclusion of the experienced Barak as defense minister strengthened his hand still further. But Kadima colleagues warned Olmert that in Labor’s Barak he was riding a tiger that would soon turn on him.

Olmert was not the only Israeli leader in trouble in 5767. Katsav was forced to resign his presidency in late June after being accused of sex offenses against several women who had worked with him. In January, Attorney General Menachem Mazuz indicated that he had sufficient evidence to indict Katsav on rape charges against at least one of the 11 complainants.

But in June, Mazuz agreed to a plea bargain under which Katsav, who professed his innocence throughout, would confess to lesser charges and receive a six-month suspended sentence. The plea bargain sparked a wave of public protest and petitions to the High Court of Justice demanding that Katsav be put on trial.

As part of the plea bargain, Katsav resigned on June 29, just two weeks before his term was due to end. He was succeeded as president on July 15 by Shimon Peres, the 83-year-old former prime minister.

The unpopular plea bargain compounded the problems faced by the country’s legal system, where the new justice minister, Daniel Friedmann, seemed to be waging a calculated campaign against the Supreme Court and its president, Dorit Beinisch.

Before his appointment in February, Friedmann had complained that the court had grown too “activist,” and that its unelected members were encroaching on what were rightly legislative and executive functions.

His critics warned that in weakening the court, Friedmann would be undermining one of the most important pillars of Israeli democracy.

Despite the second Lebanon war and the increased defense spending, the Israeli economy performed extremely well over the past year. Growth remained robust at more than 4 percent, compared to 5.1 percent in 2006.

Unemployment was down from 8.4 percent to 7.8 percent, and the gross domestic product per capita was estimated at over $20,000. Inflation, below zero in 2006, was expected to rise to the projected government figure of between 2 percent and 3 percent, although there were worrisome signs that it might go higher.

Foreign investment was expected to grow by 8 percent to $15.3 billion in 2007, and the Tel Aviv stock market, despite a major wobble in August, outperformed those of the rich Western industrial nations.