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The creation of Israel was the culmination of the Zionist movement, whose aim was a homeland for Jews scattered all over the world following the Diaspora. After the Nazi Holocaust, pressure grew for the international recognition of a Jewish state, and in 1948 Israel came into being.
Much of the history of the region since that time has been one of conflict between Israel on one side and Palestinians, represented by the Palestine Liberation Organisation, and Israel's Arab neighbours, on the other. Hundreds of thousands of Palestinians were displaced, and several wars were fought involving Egypt, Jordan, Syria and Lebanon.
Palestinians in the West Bank, including east Jerusalem, have lived under Israeli occupation since 1967. The settlements that Israel has built in the West Bank are home to around 400,000 people and are deemed to be illegal under international law, although Israel disputes this.
Israel evacuated its settlers from the Gaza Strip in 2005 and withdrew its forces, ending almost four decades of military occupation. However, after the militant Islamic group Hamas seized control of Gaza in June 2007, Israel intensified its economic blockade of the Strip.
In 1979 Egypt and Israel signed a peace agreement, but it wasn't until the early 1990s, after years of an uprising known as the intifada, that a peace process began with the Palestinians. Despite the handover of Gaza and parts of the West Bank to Palestinian control, a "final status" agreement has yet to be reached.
The main stumbling blocks include the status of Jerusalem and the fate of Palestinian refugees and Jewish settlements.
Israeli president: Shimon Peres
The Israeli president has a mainly ceremonial role; executive power is vested in the cabinet, headed by the prime minister.
On 13 June 2007, the Israeli parliament chose the veteran politician Shimon Peres to succeed Moshe Katsav, who had taken leave of absence from the presidency earlier in the year after being accused of various sexual offences.
Mr Katsav formally resigned on 29 June after agreeing to plead guilty to several of the offences as part of a plea bargain that removed two rape charges against him.
Though the post is largely ceremonial, the president has in the past been seen by many Israelis as the nation's moral compass, and many hoped that Mr Peres would restore dignity to what they saw as a tarnished office.
Mr Peres was a leading member of the Labour party for decades, but left in 2005 and later joined the centrist Kadima party.
He has twice been prime minister, and in 1994 was awarded the Nobel Peace Prize in recognition of his role in bringing about the signing of Israel's first interim peace accord with the Palestine Liberation Organisation in Oslo the previous year.
Israeli prime minister: Ehud Olmert (resigned September 2008)
Ehud Olmert, from the centrist Kadima party, is the outgoing head of a four-party coalition which includes the centre-left Labour party and the ultra-orthodox Shas party. Kadima emerged as the largest party in parliament in elections in March 2006.
Police recommended Mr Olmert's indictment over a number of financial inquiries, and he quit as Kadima leader then submitted his resignation as prime minister.
His successor as Kadima leader, Foreign Minister Tzipi Livni, attempted to form a new government, but failed to gain the backing of two smaller parties, the religious Shas and the Pensioner's Party.
Instead, Israel will now hold new elections on 10 February 2009.
Mr Olmert faced his first major test in July 2006, when Israel went to war with Hezbollah guerrillas in Lebanon. A commission of inquiry highlighted shortcomings in the conduct of the weeks-long campaign but fell short of censuring the prime minister, who said the war had destroyed much of Hezbollah's weaponry and infrastructure.
Mr Olmert had initially continued his predecessor Ariel Sharon's policy of "unilateral disengagement" from the Palestinians, meaning the withdrawal from parts of the West Bank and the absorption into Israel of several large Jewish settlement blocs with or without the agreement of the Palestinian leadership.
Following the US-sponsored Annapolis conference on peace in the Middle East in November 2007, Mr Olmert agreed to talks with Palestinian Authority President Mahmud Abbas. These have made no substantial progress towards the agreed goal of a Palestinian state by the end of 2008.
In December 2008, shortly before the February elections, the outgoing prime minister ordered a large-scale air and ground offensive against forces of the Palestinian militant group Hamas in the Gaza Strip.
The Israeli government said the operation was aimed at stopping increasingly frequent rocket attacks launched against southern Israel from Gaza. Hundreds of Palestinians were killed in the first days of the air offensive, prompting angry protests across the Middle East.
Mr Olmert has continued the construction of a 640-km (440-mile) West Bank barrier, which was launched by Ariel Sharon with the stated aim of protecting Israel from Palestinian suicide bombers. The International Court of Justice said the barrier breached international law as it runs through occupied land. Palestinians see it as an attempt to annex further land to Israel.
Palestinian leader: Mahmoud Abbas
Former Palestinian Prime Minister Mahmoud Abbas, the candidate of the Fatah faction, won the January 2005 poll to replace the late Palestinian leader Yasser Arafat.
The surprise victory of the militant Islamic movement Hamas in parliamentary polls in January 2006 led to heightened tension between the Palestinian factions. There were recurring bouts of violence between Hamas and Mr Abbas's Fatah faction, raising fears of civil war. In February 2007, Hamas and Fatah agreed to form a government of national unity.
Many analysts regard Mahmoud Abbas as a moderate. He has condemned the armed Palestinian uprising and favours the resumption of negotiations with Israel. But he faces the challenge of persuading armed groups to stop their campaign of anti-Israeli attacks.
Mahmoud Abbas was born in 1935 in Safed, a town in present-day northern Israel. He co-founded Fatah - the main political grouping within the PLO - with Yasser Arafat in the late 1950s.
He established contacts with left-wing Israelis in the 1970s and was the main Palestinian architect of the 1993 Oslo accords, which led to the foundation of the Palestinian Authority.
His brief stint as premier was plagued by power struggles with Mr Arafat over the control of the Palestinian security apparatus and over planned reforms. Mr Abbas resigned in September 2003.
The former Palestinian leader Yasser Arafat died in a French hospital on 11 November 2004, aged 75.
Israel's press and broadcasters are many and varied, and account for differences in language, political viewpoint and religious outlook.
The Israel Broadcasting Authority (IBA), set up along the lines of the BBC, operates public radio and TV services and is funded mainly by licence fees on TV sets.
Channel 2 and Israel 10 are the main commercial TV networks. Most Israeli households subscribe to cable or satellite packages.
Commercial radio arrived in 1995, but faces competition from unlicensed radio stations, some of which carry ultra-Orthodox programming.
All Israeli newspapers are privately-owned; many are available on the internet.
In its 2007 report, media rights watchdog Reporters Without Borders said Israel's journalists "enjoy a freedom not found elsewhere in the region" but added that Palestinian journalists "faced many restrictions by the Israeli authorities".
Television is the key source for news and information in the Palestinian areas.
There are dozens of private TV and radio stations. Jordanian TV is widely-watched in the West Bank. Pan-Arab satellite broadcasters, including Qatar's Al-Jazeera TV, are popular.
International watchdogs regard the media as being generally more independent than in much of the rest of the Arab world. However, journalists risk harassment, attack or arrest by the security services, armed activists or militant groups. Self-censorship is widespread.
Media rights watchdog Reporters Without Borders said in 2007 that Palestinian and foreign journalists were "victims of fierce clashes" between Hamas and Fatah.
Around 243,000 people had internet access by 2006 (via Internet World Stats).