Prime Minister of Israel Ariel Sharon announced a controversial disengagement plan in December 2003. Israel was to remove all of its civilian and military presence in the Gaza Strip, (namely 21 Jewish settlements there, and four in the West Bank), but continue to supervise and guard the external envelope on land excepting a border crossing with Egypt, which is jointly run by the Palestinian National Authority in conjunction with the European Union. Israel also maintained exclusive control in the air space of Gaza. The Israeli government argued that "as a result, there will be no basis for the claim that the Gaza Strip is occupied territory," while others argued that the only effect would be that Israel "would be permitted to complete the wall (that is, the Israeli West Bank Barrier) and to maintain the situation in the West Bank as is."
Israel implemented their disengagement plan in August-September 2005, and it was initially popular with most Israelis, helping Prime Minister Ehud Olmert to win the following election after Sharon was incapacitated by a stroke. As preparation for Israel's withdrawal from the Gaza Strip, Fatah and Hamas had called a cease-fire on attacks against Israel in February 2005. CNN reported in 2006 that Fatah and Hamas "stuck to the cease-fire it announced in February 2005, but other groups did not sign on and have continued attacks against Israel." Nevertheless, Israel continued to target militants inside Gaza whom it alleged had planned or carried out attacks on Israel, including some members of Hamas. Then in June 2006, violence on both sides escalated. Israel killed a Hamas official in a missile attack on June 5; then on June 6 militants from the "Popular Resistance" group fired rockets into Israel which produced no casualties; Israel launched airstrikes against those militants and others, killing five; and then an Israeli navy gunboat fired shells onto a northern Gaza beach, killing seven and wounding 20 amongst the Palestinian families picnicking on the beach. In response, Hamas called off its 16-month-old cease-fire.
Since that time, Israeli military incursions into Gaza and Palestinian rocket attacks towards Israeli cities have continued to this day. Later in June 2006, Corporal Gilad Shalit, a 19-year-old Israeli IDF soldier, was captured by members of Hamas. Israel carried out a military operation against targets in Gaza, which it claimed to be in response to Palestinian attacks. Israeli Prime Minister Olmert stated that Israel's goal was not to reacquire control of the Gaza Strip, and that the IDF would withdraw once its operations were completed.
Hamas's victory in the 2006 elections for Palestinian Legislative Council, and Ismail Haniyeh's ascension to the post of Prime Minister further complicated the peace process. Hamas openly states that it does not recognize Israel's right to exist, although they have expressed openness to a long-term hudna or truce.
In early 2007, Hamas and Fatah met in Saudi Arabia, and reached agreement to form a new unity government. Haniyeh later resigned, and a new unity coalition government of both Fatah and Hamas took office in March 2007. In 2007, the coalition of Hamas and Fatah collapsed, and the two engaged in a physical struggle. Eventually, Fatah was defeated in Gaza, and Hamas took over full control of the Gaza Strip. Fatah retains control of the West Bank. Gaza has been subjected to economic sanctions due to Hamas' non-recognition of Israel, and sporadic fighting between Israel and Hamas in Gaza has continued. Hamas has made recent attempts to renew a cease-fire with Israel, but Israel has so far rejected their offer.
Major issues between the two sides :
Since the Oslo Accords, finalized in 1993, the government of Israel and the Palestinian National Authority (PNA) have been officially committed to an eventual two-state solution. However, there are many major issues which remained unresolved between the two parties.