The shekel weakened against the dollar Tuesday on escalated fighting between Israel and the Palestinians.

The hostilities reversed the trend on the currency market and sent the dollar climbing to NIS 4.665, up 2.8 agorot or 0.6% from its representative rate of Monday, NIS 4.637.

An Israeli missile strike on the Gaza Strip killed 11 people Monday night, including the leader of the military wing of the Palestinian Islamic movement Hamas, a senior Hamas official confirmed on Tuesday,

Reuters

reports. Salah Shehada was head of Hamas's Izz el-Deen al-Qassam brigades, which have killed dozens of Israelis in suicide attacks since the resumption of the

intifada

in September 2001.

The Palestinians say several children were among the dead and the Hamas threatened vengeance.

Dealers see more probability in the dollar strengthening than in the shekel rebounding. "The deterioration in the security situation could return the dollar to NIS 4.70," said one dealer, adding that NIS 4.6 is a strong support level for the dollar.

Sources at the Excellence brokerage note that the dollar gained ground in Europe today too. Most of the action on the Israeli foreign currency market was interbank trading, they added, with little action by businesses.

Yesterday the Knesset voted in favor of tax reform. Final voting will be held on Wednesday, even though the reform is being amended as of writing. Passing the reform could increase demand for foreign currency, as it lowers tax on dollar-denominated investment vehicles.