According to a readout from the Secretary-General’s spokesperson, Ban expressed his concern to Netanyahu about the deteriorating situation in southern Israel and Gaza, which includes an alarming escalation of indiscriminate rocket fire from Gaza into Israel and the targeted killing by Israel of a Hamas military operative in Gaza.

Ahmed Said Khalil al-Jabari, the head of the military wing of the Palestinian group Hamas that controls Gaza, was killed when his car was reportedly targeted during Israeli air strikes on the territory that followed a wave of rocket attacks against Israel from Gaza.

The Secretary-General reiterated his strong condemnation of rocket fire out of Gaza and noted his expectation that Israeli reactions are measured so as not to provoke a new cycle of bloodshed that could cause additional civilian casualties and have dangerous spillover effects in the region.

He also called for the parties to exercise the utmost restraint and to respect international humanitarian law.

The 15-member Council met Wednesday night behind closed doors, with the participation of the two parties, and heard a briefing on the situation from Under-Secretary-General for Political Affairs Jeffrey Feltman.

In his conversation with Morsi, the Secretary-General stated the need to prevent any further deterioration of the situation, and expressed strong support for the leadership being exercised by Egypt to restore calm in the region.

The Israeli daily Haaretz reported on Sunday morning that the letter, “stressed Israel’s desire to continue cooperation and to strengthen the peace,” an Israeli source said on condition of anonymity.

The letter “congratulated Mursi on his election, offered to cooperate with the new government in Cairo and expressed… hope that both parties will observe the Egyptian-Israeli peace treaty.”

Haaretz said Israeli officials, after holding talks with Washington had decided to put off attempts to organize a phone call between Mursi and Netanyahu, but said the Israeli leader had dispatched an envoy for meetings with Egyptian security officials.

However, according to Maan news agency the Egyptian President Mohammed Mursi has refused to talk with the Prime Minister of Israel over the phone and refused to meet him, despite the letter sent congratulating him on his election.

Egypt and Israel signed a peace treaty that ended 30 years of conflict in 1979.

 Israel has watched cautiously as the Muslim Brotherhood has gained increasing influence in Egypt.

Mursi began his first full day in office on Sunday after being sworn in as the country’s first democratically elected civilian president on Saturday, Mursi formally received a transfer of power and pledge of support from the military.

Internationally, Mursi said on Saturday that Egypt would back the Palestinians.

 “I announce from here that Egypt, its people and presidential institution stand with the Palestinian people until they regain all their rights,” he said.

“The earlier positive environment brought about by the quiet engagement between the parties appears to be challenged,” the Assistant Secretary-General for Political Affairs, Oscar Fernandez-Taranco, said in a regular monthly briefing on the Middle East to the Security Council.

“The latest announcements related to settlements are an added setback. As we speak, there are ongoing intensive efforts to avoid a renewed deadlock,” he added.

Earlier this month, Israeli Prime Minister Benjamin Netanyahu announced the construction of some 850 settlement units in several West Bank settlements, Mr. Fernandez-Taranco noted. The timing coincided with effort to reach agreement with Israeli settlers to relocate five housing units in the settlement of Beit El that were built on private Palestinian land.

The Israelis and the Palestinians have yet to resume direct negotiations since talks stalled in September 2010, after Israel refused to extend its freeze on settlement activity in the occupied Palestinian territory.

“We thus strongly encourage them to urgently consider taking the necessary constructive steps that would allow them to renew the meetings between their negotiators and work towards resumed direct negotiations,” said Mr. Fernandez-Taranco, adding that only a direct and meaningful dialogue can help restore belief in a negotiated peace.

“Given the dramatic developments in the region, progress on the Israeli-Palestinian track is of even greater urgency and would have an important positive impact on the region,” he said.

He also reported that clashes between Israeli settlers and Palestinians continued in the West Bank over the past month, as did the demolition of Palestinian structures in the area.

In addition, the relative calm that prevailed in Gaza since April was disrupted with a series of recent incidents. Overall, a total of 15 rockets and 27 mortar shells were fired from Gaza into Israel, while the Israel Defense Forces conducted seven incursions and 14 airstrikes into Gaza, resulting in nine Palestinian militants killed and nine injured, and 15 Palestinian civilians injured.

While some “significant” progress was made toward lifting the five-year-old Israeli blockade of Gaza, much more needs to be done, Fernandez-Taranco said.

“All settlement construction – whether on private Palestinian land or elsewhere in occupied Palestinian territory – is contrary to international law,” said a statement issued by the office of the UN Special Coordinator for the Middle East Peace Process, Robert Serry.

According to media reports, Prime Minister Benjamin Netanyahu ordered the construction of the new units hours after the parliament rejected a bill to legalize settlement outposts. Serry said the announcement is “deeply troubling” and reiterated his recent warning to the Security Council that “if the parties do not grasp the current opportunity, they should realize the implication is not merely slowing progress toward a two-State solution. Instead, we could be moving down the path toward a one-State reality, which would also move us further away from regional peace in the spirit of the Arab Peace Initiative.”

Meanwhile, the UN Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) released a study in conjunction with the Applied Research Institute Jerusalem (ARIJ), describing the detrimental impact of the West Bank Barrier on the environment and Palestinian refugees.

The study targeted over 170 communities that have been directly affected as well as farmers owning land behind the Barrier. Land degradation, severe flooding and destruction of water sources are cited among the most devastating consequences of the Barrier, along with reductions in livestock due to limited grazing space, which significantly affect people’s livelihoods.

“The research presented today demonstrates once more that the Barrier not only has a devastating impact on Palestine refugees’ livelihoods, but also on the surrounding environment,” said the West Bank director of UNRWA operations, Felipe Sanchez.

The Israelis and the Palestinians have yet to resume direct negotiations since talks stalled in September 2010 after Israel refused to extend its freeze on settlement activity in the occupied Palestinian territory.

Negotiators from both sides began preparatory talks at the start of January in Amman, under the facilitation of King Abdullah II of Jordan and that country’s Foreign Minister, Nasser Judeh, with a view to a resumption of direct talks.

“Israel and the Palestinian Authority are committed to achieving peace and the sides hope that the exchange of letters between President Abbas and Prime Minister Netanyahu will further this goal,” the statement said, according to AP.

Netanyahu had an envoy deliver a letter to Abbas on Saturday, in response to one that the Palestinian leader had sent in April stating his complaints against the Israeli government and laying out conditions for the resumption of talks.

Although the contents of Netanyahu’s letter were not released, Israel has previously stated it was ready to restart peace talks, but only if there were no preconditions, according to Al Jazeera.

Palestinians have demanded that Israel accept a two-state solution within the borders prior to the 1967 Mideast war and to stop Israeli settlement building.

The peace process has been frozen since 2010, when Prime Minister Netanyahu rejected Palestinian demands for the temporary halt on settlement building in East Jerusalem and the West Bank.

Approximately 500,000 Israeli settlers and 2.5 million Palestinians currently live in the West Bank and East Jerusalem while around 1,600 Palestinian prisoners held in Israeli jails are currently on hunger strike according to Addameer support and human rights association.

Netanyahu stunned the political establishment on May 8 by forming a government unity with the main opposition group, the centrist Kadima party.

The head of Kadima, Shaul Mofaz, has repeatedly accused Netanyahu for the failure of the peace talks and told reporters last week that entering new negotiations “was an iron condition for forming the unity government”.

“Egypt has no objections to reach a new contract with new conditions and new prices,” Fayza Abul Naga said Monday.

The Egypt-Israeli gas deal has been viewed with great suspicion while critics point out Israel brought gas  at below market prices making the deal a rip-off for Egypt.

Earlier Monday, Egypt stressed that the cancellation of the gas deal between the two countries was not motivated by political developments, but rather was a business dispute between them.

Egypt’s ambassador to Israel also confirmed Monday that the decision to terminate the gas deal was not a political one.

Abul Naga said Israel had been notified several times that it was not meeting its financial obligations while its last chance was until March 31.

Prime Minister Benjamin Netanyahu downplayed the move Monday, calling it a “commercial dispute” and that Israel has natural gas reserves “that will allow it to be energetically independent.”

U.S. has recently warned that its assistance to Egypt depends on sustaining the peace accords with Israel, yet did not list the gas agreement as one of the conditions.

U.S. assistance to Egypt sums up to about 1.3 billion dollars in military aid and an extra 300 million dollars in economic aid, Haaretz reported.

A four-man Ministerial committee formed by Prime Minister Netanyahu, “decided to formalise the status of three communities which were established in the 1990s following the decisions of past governments,” said the statement.

The Government has already declared several times in the past  in court its intention to legalize the outposts. It is the first time since the Shamir Government in 1990 that the Israeli government is has decided the establishment of new settlements.

The three outposts: Bruchin, Rechelim and Sansana  had no Israeli legal status since being established.

Bruchin has around 350 residents and is located in the northern West Bank, along with Rechelim, which is home to around 240 people. Sansana, home to 240 people, is in the southern West Bank, near Hebron, Alarabiya reports.

Hagit Ofran of Israeli settlement watchdog Peace Now condemned the government for establishing new settlements in a a devious way.

“The Israeli government is proving its true policy, that instead of going to peace it is building new settlements,” she told AFP on Tuesday.

According to Israel,  settlement outposts built without government approval are illegal, but the international community views all settlements as unlawful, whether approved by the government or not.

Negotiations between Israel and the Palestinians have been stalled since  2010 due to disagreement over Jewish settlement building.

Netanyahu says the future of settlements should be decided in peace negotiations.