Australia was implicated in an Israeli spy scandal early in the year, with the use of fake passports linked to a murder in the United Arab Emirates.
Hamas official Mahmoud Al-Mabhouhwas murdered in a Dubai hotel room on the 20th of January.
Video footage released by police showed the murder suspects in disguise at the hotel and earlier at Dubai airport.
The suspects were found to be travelling on fake Irish, British, German, French and Australian passports.
Dubai police claimed the Jewish state's secret service, Mossad, was behind the assassinations.
Incident unacceptable
Police chief Dahi Khalfan said the incident was unacceptable.
'And if the leaders of certain countries issued orders to their intelligence and security agents to kill, then that is a deplorable and unacceptable method of operation,” Mr Khalfan said.
Australian Foreign Minister Stephen Smith said Australian agencies had concluded that three of the passports were from Australia.
Mr Smith said he had told the Israeli Ambassador there should be full co-operation with a joint investigation.
“We would expect the Israeli government, its officials and its agencies to fully co-operate with the Australian Federal Police in that investigation I also indicated to him that if we didn't receive that co-operation then we would potentially draw adverse conclusions from that,” Smith said.
Britain responded to the use of its nationals' passports by expelling an Israeli diplomat.
The Foreign Secretary David Miliband said he believed it highly likely Mossad was involved.
“The government takes this matter extremely seriously. Such misuse of British passports is intolerable. It presents a hazard for British nationals in the region.It also represents a profound disregard for the sovereignty of the United Kingdom."
The fact that this was done by a country which is a friend with significant diplomatic, cultural, business and personal ties to the UK only adds insult to injury,” Miliband said.
By May, Australia had also decided to expel a senior Israeli embassy official.
Stephen Smith said the incident had undermined trust between the two countries.
“These are not the actions of a friend. I regret to advise the House of Representatives that this is not the first occasion that Australian passports have been misused by Australian authorities.
The Dubai passports incident also constitutes a clear and direct breach of confidential undertakings between Australia and Israel, dating back some years.
This is not what we expect from a nation with whom we have had such a close, friendly and supportive relationship,” Smith said.
The diplomat's expulsion drew the ire of the Australia and Israel Jewish Affairs Council.
The Council's Executive Director, Colin Rubenstein, said the move was unwarranted.
“This is a rather disappointing step and we think it's an over-reaction. The Government of course should protect the integrity of our passport system and we understand and sympathise with that. But we believe they've already expressed their displeasure in the strongest possible terms,” said Rubenstein.
In late May, a clash between Israeli forces and pro-Palestinian activists in the Mediterranean captured the attention of the international community.
Israeli naval personnel boarded a ship en route to Gaza from Turkey as it tried to run Israel's blockade of the Palestinian territories.
The ship was one of six carrying pro-Palestinian activists and aid supplies bound for Gaza.
After the vessel refused to stop, Israeli naval commandos boarded.
The ensuing clash left at least nine of those onboard, mainly Turkish nationals, dead.
The incident plunged Israel into a serious diplomatic crisis on the eve of talks in Washington between United States President Mr Barack Obama and Israeli Prime Minister Mr Binyamin Netanyahu.
Confrontation provoked
Israeli spokesman Mark Regev told the BBC, the ship was carrying militants determined to provoke a confrontation.
“Our young navy servicemen were given clear instructions to do this as restrained as possible, to do the interception when they proceeded any way towards the blockaded area, to do the interception as quietly as possible, almost as a police action, but when the interception started our servicemen were attacked - live fire, iron clubs, and knives,” Regev said.
Israeli opposition leader Ms Tzipi Livni told CNN the soldiers were acting in self-defence.
“A few Israeli soldiers entered the ship and they were brutally attacked by these activists. Hundreds of people attacking a few soldiers.
At first the soldiers showed restraint and only when the atmosphere became or transferred into a kind-of a lynch atmosphere, they decided to react, to act, and to shoot those that tried to kill them,” she said.
Turkey was outraged
Turkish Foreign Minister Ahmet Davutoglu accused Israel of breaching international law.
“In simplest terms, this is tantamount to banditry and piracy. It is murder conducted by a state. There are no excuses and no justification. A nation state that follows this path has lost its legitimacy as a respectful member of the international community,” Davutoglu said.
Israel detained four Australians after the raid, two of them Fairfax journalists.
A fifth Australian was hospitalised after being shot in the leg.
The United Natioins called for an explanation, and several countries including AUSTRALIA, called for the end of the Gaza blockade.
Australia's response
Prime Minister Kevin Rudd said aid should be allowed to get through.
“When it comes to a blockade against Gaza, preventing the supply of humanitarian aid such a blockade should be moved. We believe the people of Gaza, leaving aside the whole question of a long standing dispute and long standing war the people of Gaza should be provided with humanitarian assistance,” Rudd said.
In June, Israel agreed to ease the blockade, but provided few details on what new goods would be allowed.
Defence Minister Ehud Barak said the naval blockade and inspections of all goods entering by land would be retained.
Hamas swiftly rejected the easing of the restrictions as insincere.
Spokesman Sami Abu Zuhri doubted it would improve living conditions in the Palestinian territory.
“The delaration to allow a hundred more items in is nothing but media propaganda, and it will not change the nature of the siege. Our people don't need these items anyway. There's no need for mayonnaise and chips.
We need real materials, materials of construction for the rebuilding process, such as cement and iron. Even if all the items were allowed in, we are not looking for an ease to the siege. We are looking for a total lifting of the siege,” Sami Abu Zuhri said.
Meanwhile, Israel resisted pressure to agree to an independent inquiry into the flotilla incident.
It instead launched an internal commission featuring two international observers, described by some commentators as an unprecedented move by Israel to show transparency.
The Israeli Defence Force's head of investigations, Major-General Giora Eiland, praised the Israeli forces' bravery, but conceded there were errors made.
“In this inquiry, we found that there were some professional mistakes, regarding both the intelligence and the decision-making process, and some of the operational mistakes,” Eiland said.
Then, in a surprise move, Israel agreed to co-operate with a United Nations investigation into the raid.
Mark Regev said Israel was satisfied with the makeup of the U-N panel, and his country's opposition to an international investigation no longer applied.
“We will participate in a panel set up by the secretary general to look into the flotilla incident. Ultimately we are sure that the facts are on our side. And we have no problem what so ever with an objective and credible look at the investigative process underway,” Regev said.
The UN investigation found Israeli soldiers committed 'willful killing and torture,' during the raid.
Israel dismissed the findings as biased and refuted the U-N's interpretation of the force used as 'brutal and disproportionate'.
Peace talks relaunched
In September, Israeli Prime Minister Binyamin Netanyahu and Palestinian president Mahmoud Abbas accepted a United States invitation to relaunch direct peace negotiations after a nearly two year hiatus.
Mr Netanyahu and Mr Abbas met in Washington and were joined by leaders of the Egypt, Jordan and the United States - including President Barack Obama.
“Only Israelis and Palestinians can make the difficult choices and build the consensus at home for progress. Only Israelis and Palestinians can prove to each other the readiness to end this conflict and make the compromises upon which lasting peace deserves” President Obama said.
The talks followed months of diplomatic wrangling by US Middle East envoy Mr George Mitchell.
Issues to be resolved included the borders of a Palestinian state, Jewish settlements, security and the right of return for Palestinian refugees.
Mr Netanyahu said he was committed to a lasting peace.
“We don't seek a brief interlude between two wars. We don't seek a temporary respite between outbursts of terror. We seek a peace that will end the conflict between us once and for all,” Mr Netanyahu said.
The sentiment was echoed by Mahmoud Abbas.
“Time has come for us to make peace and it is time to end the occupation that started in 1967 and for the Palestinian people to get freedom, justice and independence.
It is time that an independent Palestinian state be established with sovereignty, side-by-side with the state of Israel. It is time to put an end to struggle in the Middle East,” Mr Abbas said.
However, the issue of Jewish settlements proved to be a major stumbling block in negotiations.
While talks were underway, the Israeli government announced a freeze on new Jewish settlements in the occupied West Bank had expired and the building of more than a thousand new homes in East Jerusalem had been approved.
The 10-month freeze was on settlements from farming communities to residential areas, which were internationally-recognised as illegal.
Talks almost immediately stalled, and in early December, were suspended altogether.
Senior Palestinian Negotiator Nabil Shaath said negotiations would not resume until Israel abandoned its settlement plans.
The United States government said it had abandoned efforts to persuade Israel to freeze settlement construction.
United Nations spokesman Martin Nesirky said the UN was unhappy with the outcome.
“Robert Serry the UN special coordinator for the Middle East peace process said today that he's concerned that Israel has not heeded the Quartet's call to freeze settlement activity in the West Bank including East Jerusalem.
He reiterated that settlements are contrary to the roadmap and international law and their continuation is causing a crisis of confidence in the efforts to bring about meaningful political negotiations,” Mr Martin Nesirky said.
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