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Israel's President Shimon Peres has called Israeli settlement building in occupied territory a "marginal issue" that he says became a central issue for the wrong reasons.

Mr. Peres made the comments Sunday in Cairo during a joint news conference with his Egyptian counterpart, Hosni Mubarak.

The two men met to discuss the stalled Middle East peace process.  Egypt has been a key mediator in the Israeli-Palestinian conflict. 

Mr. Mubarak told reporters that Israel must stop building on land it captured in the 1967 war.  Mr. Peres said he believes the settlement dispute can be resolved though negotiations.

Palestinian President Mahmoud Abbas has said peace talks cannot resume until Israel stops its settlement activity. 

Israel has repeatedly dismissed calls from the United States and other nations to halt its settlement building.

Earlier Sunday, Israel's military said its aircraft struck two factories in Gaza and a smuggling tunnel between the Gaza Strip and Egypt.

Palestinian medics said Sunday's air assault wounded at least seven people. 

The Israeli military said the air attack was in response to a rocket fired Saturday by Palestinian militants into southern Israel.  The rocket caused no injuries or damage.

The air assault comes one day after Hamas said it had reached a deal with other Palestinian militant groups in the Gaza Strip to stop firing rockets on southern Israel... >>>