As violence spirals and calls for peace talks grow, extremists say they will build a new West Bank settlement for each of the eight students killed

Israel's far-right settler movement has set itself on a renewed collision course with the government of Prime Minister Ehud Olmert, declaring that last week's massacre in a Jewish religious school had targeted them directly and vowing to build a new illegal outpost in the West Bank for every one of the killed students.

Amid a sense of spiralling crisis in Israeli and the Occupied Territories - which has stemmed from the impression that both Olmert and Palestinian President Mahmoud Abbas are rudderless amid the climbing violence - Abbas performed yet another policy U-turn, calling for new talks with Israel after having earlier appeared to back away from peace talks.

The latest moves follow the killing on Thursday by a Palestinian gunmen of eight Jewish seminary students, the bloodiest attack in Israel in two years. Hamas, which had vowed to avenge the more than 125 Palestinians killed in a recent Gaza offensive by Israel, at first claimed responsibility, then backtracked.

Hamas's claim came as the spokesman for Israel's right-wing settlement movement said that he believed the attack on the religious college was aimed at his movement. Dani Dayan, the chairman of the Yesha Council, said yesterday that the attacker deliberately targeted Mercaz Herav yeshiva, known for its messianic, national religious Zionism. 'Of course it wasn't a coincidence or by chance,' Dayan said.

Israel has been under increasing pressure from the United States, its main ally, to stop building settlements in the occupied West Bank but the government has struggled to curtail the expansion because the settlers wield considerable electoral power.

Olmert needs the religious right in his governing coalition to maintain his fragile grip on power.

The religious right opposes the US-backed Annapolis peace talks and this latest attack will further undermine Olmert's authority. Dayan said the peace talks were 'leading nowhere'. 'They have raised expectations that everyone knows can't be fulfilled by Olmert or Abbas,' Dayan said. 'In this part of the world, when your raise expectations and can't fulfil them, you get violence.'

But even secular Israelis have been angered by the attack. Professor Ephraim Yaar at the Tami Steinmetz Center for Peace Research, who conducts a monthly peace poll, said: 'There certainly will be a very adverse, strong effect.' However, Yaar said the anger among secular Israelis would recede within a month, assuming there are no more similar attacks.

Despite confusion about who carried out the attack, there is speculation that Hamas and Hizbollah colluded to avenge the alleged Israeli assassination of a senior Hizbollah commander in Damascus last month and Israel's incursion into Gaza last week which killed more than 100, many of them civilians.

The conflict between Hamas and Israel intensified after Hamas ousted its main political rival, Fatah, from the Gaza Strip in the middle of last year. Abbas, who leads Fatah, condemned the attack on the seminary and insisted that the Annapolis peace process was the only way to settle the 60-year conflict. 'Despite all the circumstances we are living through and all the attacks we are experiencing we insist on peace,' Abbas said.

While Olmert is also expected to continue peace negotiations, his government will come under intensified pressure to retaliate with a strong military response in Gaza. But last Tuesday, two days before the Jerusalem shooting, US Secretary of State Condoleezza Rice was forced to step in and prop up the shaky talks after Abbas suspended contact in the wake of Israeli's military operation in Gaza.