* Olmert: Army could step up op in Gaza Israel has yet to exhaust all of its military options in the Gaza Strip and could step up its actions against Hamas if the government decides to press forward Operation Cast Lead.

* At least two Lebanon rockets hit north Israel; Hezbollah denies involvment At least two Katyusha rockets fired from south Lebanon exploded in northern Israel on Thursday morning.

* Sarkozy, Merkel, Blair call for new capitalism The head of Europe’s biggest economy said Thursday that world leaders should be looking at the massive U.S. deficit.

* Hamas Rejects Ceasefire Despite taking heavy losses in the Cast Lead operation in Gaza, Hamas announced Thursday that it rejects an Egyptian-French truce initiative.

* Iran’s Larijani meets Hamas in Damascus A senior Iranian politician met Hamas leader Khaled Mashaal in Damascus on Wednesday as the Palestinian Islamist group considered an Egyptian proposal for a ceasefire in the Gaza Strip.

* Leadership Crisis Emerging in Palestinian Authority A constitutional leadership crisis is looming over the Palestinian Authority as Jan. 9.

* Czechs prepare for possible second Irish No The Czech EU presidency is preparing a contingency plan for one of the most sensitive areas in the EU institutional set-up.

* US to head anti-pirate patrols off Somalia A new international force to battle pirates off the Somali coast is being formed under American command.

* ‘Concentration camp’ remark threatens Pope’s visit to Israel A question mark hangs over Pope Benedict XVI’s planned trip to Israel in May after Israeli officials expressed outrage over a Vatican statement comparing Gaza to a “big concentration camp”.

* Hundreds of thousands rally in Syria to protest Gaza attack Hundreds of thousands of Syrians swarmed downtown Damascus Thursday in a government-orchestrated rally to protest Israel’s military offensive against the Gaza Strip.