(Bloomberg) -- A surprise multifront attack on Israel by the Palestinian group Hamas will likely lead to a massive military retaliation on Gaza and possibly to a wider conflagration with repercussions beyond the Middle East.

The flare-up — involving infiltrations, capture of soldiers and civilians, and thousands of rockets — comes at a time of enormous diplomatic sensitivity and a moment of weakness for Israel that analysts have been warning its enemies might seek to exploit.

The country is in negotiations with the US and Saudi Arabia on a complex three-way deal in which Washington would offer security guarantees to Riyadh. The Saudis, for their part, would normalize relations with Israel. Israel has also been talking with Turkey and others about gas exports to Europe along with corridors for trade from Asia.

Internally, Israel has been embroiled in political turmoil that left it vulnerable. Last April, the nation found itself briefly engaged on three fronts simultaneously — Gaza, Lebanon and Syria — after rocket fire came from all three. Part of the trigger was that Israeli Jews entered the grounds of the al Aqsa mosque compound in Jerusalem. This past week, that too occurred.

“I can’t exclude a multi arena war that will cause a very very severe threat to the state of Israel,” Giora Eiland, a former national security adviser in Israel, said in a briefing with journalists. He added, though, that Israel prefers to fight one enemy at a time and would not be quick to open another front.

Israel Latest: PM Says Nation Is at War After Deadly Incursion

Israeli officials have been saying for months that Palestinian militant groups, guided and funded by Iran, were preparing for violence and that Israel was ready to strike back. That said, Saturday’s attack on the Sabbath and Jewish holiday caught the country distinctly by surprise, adding to a sense of injury that could feed its response.

Nation at War

Prime Minister Benjamin Netanyahu, the focus of the weekly anti-government demonstrations, will likely find a moment of national unity after the attack, leading opposition politicians to back a strong response. The protest that was due to take place on Saturday night was called off.

“Citizens of Israel, we are at war,” Netanyahu said in a videotaped statement. “Not in an operation. Not some back-and-forth. At war.” He added: “The enemy will pay a price it has never known.”

The conflict could further weigh on Israeli financial markets, which have been roiled this year due to mass protests against a government plan to weaken the power of judges. The shekel is down almost 9% against the dollar, one of the worst performances among major currencies tracked by Bloomberg, while investment in Israel’s tech sector has plunged.

The last major Israeli military operation against Hamas in Gaza was in 2014. It lasted for seven weeks and killed more than 2,000 Palestinians there along with dozens of Israelis.

West Bank Risk

Part of the Saudi deal is expected to involve Israeli concessions in the West Bank to strengthen the Palestinian Authority and add to the possibility of an independent Palestinian state. That arrangement will be in jeopardy should the latest fighting lead Israel to extend its operation into the West Bank.

Saudi Arabia wants US protection assurances partly because of its own concerns about Iran. If Iran is shown to be playing a key role in Saturday’s attack on Israel, that could affect those negotiations.

In the current fighting, 40 deaths have been confirmed in Israel as have hundreds of wounded. Thousands of Israeli reservists have been called up. In Gaza, the Hamas health ministry said Israeli retaliatory strikes had injured more than 500 who’d been taken to hospital.

Hours after the infiltrations began, Israeli soldiers were still in live-fire confrontations in half a dozen towns in the south and at least one military base. Hamas operatives seemed to have taken over a collective farm inside Israel, taking Israelis captive.

Adding to the pressure on Netanyahu, the attack is being widely described as the worst lapse of Israeli defense since Syria and Egypt launched an unexpected war on the country 50 years ago.

“This appears to be a colossal intelligence failure by the Israeli establishment,” said Jonathan Conricus, a former Israeli military spokesman. “What we are seeing indicates long and meticulous planning that should have been picked up. Very tough questions are being asked and hard answers will have to be given.”

Iran Question

Conricus blamed Iran, at least indirectly, for being behind the attack and speculated that the Israeli response could spread beyond Gaza.

The military is ramping up its defenses near the border with Lebanon where Iranian-backed militant group Hezbollah operates and is also paying close attention to developments in the occupied West Bank.

Lieutenant-Colonel Richard Hecht, a spokesman for the Israel Defense Forces, said the infiltrators came via road, sea and air and that the surprise of the operation would be investigated.

The issue now is how the confrontation escalates, said Miri Eisen, a retired colonel who worked in military intelligence and now runs a counter-terrorism institute at Reichman University in Israel. Whether this will lead to a bigger war “is the $64,000 question,” she said. “If Iran has a finger in this, do we now preempt against the next stage?”

--With assistance from Galit Altstein and Paul Wallace.

*

--   https://www.yahoo.com/finance/news/surprise-attack-weakened-israel-imperils-123031739.html