JERUSALEM - Israel responded defiantly Sunday to a bloody Palestinian assault against West Bank settlers by approving construction of new settlement housing, retaliating for the stabbing deaths of a father, mother and three small children with a measure that infuriated Palestinians and, together with the attack, threw already shaky peace efforts into a new tailspin.
Even in a country long accustomed to violence, the grisly details of the killings late Friday stunned Israel. Among the victims were a 4-year-old boy and his baby sister. Their pictures leaped from Israel's front pages, pushing news of the Japanese earthquake and tsunami disaster aside.
As Israel's military searched for the Palestinian suspects in a broad sweep in the West Bank, thousands of mourners thronged a Jerusalem cemetery for the funeral.
"There is not a Jewish heart that is not shedding a tear," Chief Rabbi Yona Metzger said in a eulogy, his voice cracking in anguish. "After such horrific pictures, with whom do we have to sit and talk peace?"
Mourners screamed and wailed as the bodies of the three male victims were brought in wrapped in white and black prayer shawls, the two females in blue shrouds. The pouch containing the infant was no larger than a potato sack.
Many rocked back and forth in prayer as speakers addressed the audience, and family members collapsed in grief. Some mourners bore signs in Hebrew reading, "The government demolishes homes, Arabs murder Jews."
The bloodshed, which shattered a lengthy lull in the West Bank, threatened to drive Israeli-Palestinian peacemaking even further out of reach. Peace talks have been stalled since September, and the combination of deadly violence against Israelis and new settlement construction was likely to deepen the mutual distrust.
Officials said assailants cut through a fence surrounding the settlement of Itamar, entered the home of the Fogel family and killed the parents -- Udi, 36, and Ruth, 35, -- and three of their children, Yoav, 11, Elad, 4 and 3-month-old Hadas. An older daughter who was out with friends came home and discovered the carnage. The attack took place shortly after the family finished the weekly dinner celebrating the Jewish Sabbath.
Footage of the gory scene broadcast on Israeli media showed children's toys in pools of blood and tipped over furniture. A settler group released photos of the dead lying on the floor with bloody wounds. One of the pictures showed the body of a baby and an adult laying on blood soaked sheets, further shocking already traumatized Israelis.
Israel indirectly blamed the Palestinian government for the carnage.
Israel has long contended that Palestinian textbooks and official media are full of hatred toward the Jewish state, and that killers of Israelis are often glorified.
On Sunday, a group of activists from Palestinian President Mahmoud Abbas' Fatah movement dedicated a square in the West Bank city of Ramallah after Dalal Mughrabi, a female militant who carried out a 1978 bus attack that killed 37 Israelis. Aides to Abbas said they tried to stop the ceremony and the move was not officially sanctioned.
Addressing his Cabinet, Israeli Prime Minister Benjamin Netanyahu said Abbas called him to express sorrow over the violence.
"I told him that we expect much more unequivocal condemnations, but even more than that, we want to see unequivocal action by the Palestinians to stop allowing this incitement," he said. "We think that educating people toward peace is an integral part of peace."
Israeli troops continued with a second day of raids in Palestinian villages around Itamar, which has poor relations with its Arab neighbours. Officials said some 20 suspects were in custody, though there was no word on whether any were believed to be the killers.
In another slap at the Palestinians, Israel announced that a special team of Cabinet ministers led by Netanyahu approved the construction of up to 500 new homes in Jewish settlements. In a visit to the parents of the dead couple, Netanyahu said, "They shoot, we build," according to a statement from his office.
One Israeli official, speaking on condition of anonymity under government regulations, said the construction was meant to dissuade "anyone who thinks that with knives, Jews will leave their homes."
Jewish settlements are at the heart of the current impasse in peace efforts. The Palestinians refuse to negotiate as long as Israel expands the enclaves, which are built on occupied territories claimed by the Palestinians.
The new construction is slated for settlement blocs Israel intends to keep in a peace arrangement, unlike Itamar, which is deep in the West Bank.
The U.N.'s Mideast envoy, Robert Serry, criticized the new construction as counterproductive.
Nabil Shaath, a top adviser to the Palestinian president, angrily rejected the Israeli criticisms and accused Netanyahu of trying to exploit the bloodshed for political gain.
"We never stopped condemning killing civilians, whether they were Palestinians or Israelis, and we hope that Israel does the same," he said. "Netanyahu is trying to use this ugly, inhuman attack to blackmail the Palestinians politically ... and increase settlement construction and escape the requirements of the peace process."
The Al-Aqsa Martyrs' Brigades, a near-defunct militant group that has loose ties to Fatah, claimed responsibility for the attack. But neither Israeli nor Palestinians officials took the claim seriously. Shaath said he believed it was the work of an individual, and Palestinian security officials said they were co-operating with Israel to find the assailant.
Defence Minister Ehud Barak vowed that "the iron fist" of Israeli security forces would "soon land on the murderers." Israel's military chief, Lt. Gen. Benny Gantz, likened the perpetrators to subhumans, and Netanyahu called them "monsters."
The Council of Religious Institutions of the Holy Land, a body that includes the top Jewish and Muslim religious leaders in the Holy Land, issued a rare statement condemning the attack. "This is a criminal act with no justifiable reasoning and should be treated as such," it said.
Developments on the diplomatic front could depend in part on whether the violence spreads. Netanyahu has been hinting that he will soon present a new peace plan to end the current impasse, possibly by proposing a Palestinian state within temporary borders. Netanyahu's office said he had not decided on whether to push forward with his proposal.
