Israel Defense Forces should restraint from massive military response to the predawn Palestinian attack on the army post near the Gaza border, Israeli cabinet decided in a special session last evening.

The restraint will allow enough time for the army to locate the missing soldier who was believed to be captured in the raid which left two Israeli soldiers killed, according to Haaretz newspaper.

Israeli cabinet, meanwhile, granted green lights to the army for preparing military operation to free the soldier abducted in the predawn raid Sunday.

The cabinet authorized Prime Minister Ehud Olmert and Defense Minister Amir Peretz to determine when a military operation would be launched.

Diplomatic efforts and international pressure should be employed to secure the release of the 19-year-old soldier Gilad Shalit, according to the cabinet decision.

Olmert suggested that the army should prevent the armed groups from taking Shalit out of the Gaza Strip. Palestinian prisoners will not be released in exchange of Shalit, he added.

Israeli Defense Minister Amir Peretz warned Sunday afternoon the soldier's kidnappers against harming him, making a veiled threat that whoever did so would pay with his life and the lives of his commanders.

According to Haaretz, a spokesman for the Popular Resistance Committees, one of the militant groups that carried out the attack, told a local Gaza radio station that Shalit has stomach wounds, but is in stable condition.

Arab diplomats negotiating the soldier's release said that he was in good condition.

Eight Palestinian gunmen had infiltrated the Israeli army post via a tunnel dug under the border, fired two missiles at a tank and a pillbox respectively, and blew up an armored personnel carrier. At least three Palestinian gunmen were killed in the battle.

Two Israeli soldiers were killed and four others were wounded, Israeli army confirmed.

Backed by a helicopter, Israeli troops and tanks entered into the Gaza Strip to manhunt the Palestinian gunmen after the assault in the largest incursion since Israel withdrew forces and settlers from Gaza last summer after a 38-year presence.

In a news conference on Sunday afternoon, Israeli Chief of General Staff Lt.-Gen. Dan Halutz pledged that the army would do everything necessary to secure return of Shalit.

"As far as we know, the soldier kidnapped in strike is still alive," Halutz said.

Deputy Palestinian Prime Minister Nasser Shaer called for release of the abducted soldier.

Palestinian President Mahmoud Abbas called for return of the kidnapped soldier and resuming ceasefire with Israel.

He also condemned the attack as violation of the agreements reached by Palestinian factions Saturday, which limits the "resistance" operations to territories occupied by Israel since the 1967 Middle East War.