Israeli officials on Sunday tried to downplay tensions looming with the United States after George Mitchell, the Obama administration's Middle East envoy, suggested in a PBS interview that the US could consider withholding support for loan guarantees for Israel.

Israel's finance minister, Yuval Steinitz, said on Sunday that Israel has "no indication that there is any intention to pressure us through the guarantees ... only a few months ago we reached an agreement with the US treasury and state departments on the extension of their guarantees." However, he also said that Israel could do without the guarantees, if necessary.

"We don't have to use those guarantees. We are doing very well without them," Mr. Steinitz said Sunday. He added in his comments that Israel late last year agreed with the US on the guarantees for 2010 and 2011, and no conditions were placed on Israel at that time.

Israeli Education Minister Gideon Sa'ar also addressed Mr. Mitchell's remark at Prime Minister Benjamin Netanyahu's weekly cabinet meeting on Sunday, saying that Israel would act in its own interests and not according to external pressures.

"The American administration knows that those who are holding up the negotiations are the Palestinians," said Sa'ar. "Israel made many concessions while the Palestinians didn't do a thing."

From the Israeli point of view, Netanyahu's offer of a ten-month freeze in settlement construction back in November was a peace-making gesture that has not been met by Palestinian willingness to come back to the negotiating table. But from the Palestinian viewpoint, President Mahmoud Abbas is finally "standing up" to Western pressure to return to negotiations by insisting on a full moratorium on building of Israeli settlements, including in East Jerusalem. The Palestinians see the eastern half of the city – under Jordanian control until 1967 -- as their future capital, but Israel annexed the territory and does not consider East Jerusalem neighborhoods as settlements.

A hot issue

US backing for Israel's loan guarantees has been a hot issue in the past, most pointedly in the early 1990s when the administration of George H. W. Bush faced a head-on collision with the Likud premier, Yitzhak Shamir, who refused to curtail settlement building in the West Bank. Ultimately, the Bush administration decided it would subtract equivalent amounts of money from the $10 billion in loan guarantees for every dollar Israel spent building settlements in the occupied territories. The outcome of the spat was a low-point in US-Israel relations.

"Theoretically of course, the withdrawal of loan guarantees could be an act of pressure, but Israel doesn’t really need loan guarantees," says Peter Medding, an expert on US-Israel relations at the Hebrew University of Jerusalem. "But if they try to do it, as they did very unsuccessfully in the early 1990s, it would have to come from the White House. I don't think it's Obama's style, and I don't think it fits the circumstances. If anything, they've been trying to persuade Abbas to come to the party, and are still waiting for him. "

Certainly, Senators John McCain (R) of Arizona and Joseph Lieberman (I) of Connecticut agree with this view, as the two expressed during a press conference in Jerusalem.

"Any attempt to pressure Israel, to force Israel, to the negotiating table by denying Israel support will not pass the Congress of the United States," said Senator Lieberman.

Senator McCain added: "We disagree, obviously, with that comment and I am sure that you will see the administration in the future say that is certainly not the administration's policy."

Increased military activity in Gaza

Concurrent with the political tensions is a ratcheting up of military activity over the past few days in and around Gaza. Mr. Netanyahu said that 20 mortars and rockets had been fired at Israel in the past week.

"I regard this very seriously," Netanyahu said Sunday. "The [Israeli Defense Forces] responded immediately; it attacked missile-producing factories in the Gaza Strip and tunnels through which Iran smuggles missiles and rockets into the Strip. The government's policy is clear: Any firing at our territory will be responded to strongly and immediately."

Israel said four missiles were fired at Israel's Negev region from Gaza on Sunday. Palestinian sources reported that Israeli air strikes east of Deir el-Balah killed one and injured several others.

Early Sunday, Palestinians said two Gaza were shot dead in northern Gaza Strip near Israel's security barrier. Israel's military said it was not involved in the incident, according an initial investigation. On Thursday, three Palestinians were killed in a series of Israeli air strikes in Gaza, including the first air raid in months to target a site inside Gaza City.

--- Material from the Associated Press was used in this report.