Israel's prime minister has said Iran wants to take advantage of the chaos in Egypt to create "another Gaza" there and warned that Islamic parties have already taken over power by democratic means in Iran, Lebanon and Gaza.

Speaking before the Israeli parliament on Wednesday, Benjamin Netanyahu said he expects any new government in Egypt to honor its three-decade-long peace agreement with Israel.

Israeli Prime Minister Benjamin Netanyahu on Monday warned of the dangers of an Iranian-style regime arising out of the political chaos sweeping through Egypt.

"In a time of chaos, an organized Islamic group can take over the state. It happened in Iran and it also happened in other places," the Israeli leader said at a press conference with visiting German Chancellor Angela Merkel.

German Chancellor Angela Merkel urged Israeli Prime Minister Benjamin Netanyahu on Monday to seek a swift revival of peace talks with the Palestinians citing regional unrest as cause for urgency.

At a joint press conference with Netanyahu on the first day of a visit to Tel Aviv that included a joint German-Israeli cabinet meeting, she spoke of "troubled times" against a backdrop of civil revolt in Egypt and Tunisia.

Israel has told its diplomats in the United States, Europe and elsewhere to encourage their host nations to support the regime of Egyptian President Hosni Mubarak, daily Haaretz reported Monday.

The newspaper said Israel's foreign ministry told its diplomats to stress that it is in "the interest of the West" and of "the entire Middle East to maintain the stability of the regime in Egypt."

Israel is carefully watching developments in Egypt and its efforts are focused on maintaining the "stability and security" of the region, Prime Minister Benjamin Netanyahu said on Sunday.

"We are attentively following what is going on in Egypt and in our region," Netanyahu told reporters at the start of the weekly cabinet meeting after holding late-night talks with top intelligence brass and key ministers.

Israeli radio reported on Sunday that Prime Minister Benjamin Netanyahu was planning to hold talks with his government on the situation in Lebanon. The radio gave no further details.

A spokesman for Netanyahu, questioned by AFP, would not confirm or deny that the meeting would include discussions on Lebanon.

The Middle East peace process lay in tatters Wednesday after Washington admitted defeat in its efforts to secure an Israeli freeze on settlement building, the Palestinians' condition for resuming talks.

Speaking late on Tuesday, U.S. officials admitted top-level efforts to coax Israel into imposing new curbs on West Bank settlement construction had gone nowhere, prompting Palestinian president Mahmoud Abbas to declare a crisis in peace efforts but backslapping among Israeli hardliners.

Israel on Wednesday was discussing the format of an investigation into its deadly raid on a Gaza-bound flotilla, but Prime Minister Benjamin Netanyahu insisted soldiers would be off-limits.

Israel was in talks with "several members of the international community" about the investigation, Netanyahu said, stressing that it should focus on "the pro-Palestinian activists who fought the naval commandos with knives and clubs."

President Barack Obama Wednesday pledged unwavering commitment to forge significant progress in the Middle East this year, despite the furor whipped up by Israel's raid on a Gaza aid flotilla.

Welcoming Palestinian President Mahmoud Abbas to the White House, Obama promised the "full weight" of U.S. diplomacy on the latest crisis and to push Israelis and Palestinians out of a "dead end" and into direct peace talks.