Israeli forces intensified operations in central Gaza City on Saturday, the military said, moving into residential neighborhoods that had been pockets of resistance for months. The advance comes ahead of a meeting on Monday between Prime Minister Benjamin Netanyahu and former U.S. President Donald Trump that officials and diplomats portray as pivotal for shaping the next phase of international engagement over the nearly two‑year conflict.

The Israeli Defense Forces described the movement as targeted operations against militant infrastructure, while Palestinian health officials and local witnesses reported continued civilian casualties and displacement. The unresolved fate of two hostages detained in Gaza has become a central domestic political issue in Israel, officials and commentators say, and could weigh heavily on Netanyahu’s negotiating room and public standing during the Trump visit.

Talk of a diplomatic resolution has increased in recent days, according to Western diplomats and mediators who have begun to outline frameworks for phased cease-fires and hostage exchanges tied to humanitarian corridors. But military gains on the ground complicate those efforts. “Operational advances can harden positions,” one European diplomat briefed on the talks told reporters, asking not to be named because discussions remain sensitive.

Beyond immediate security and humanitarian consequences, the escalation has tangible economic effects. The prolonged conflict has forced Israel into substantial emergency spending: government officials have authorized emergency budget measures running into the tens of billions of shekels to cover defense operations, reconstruction planning and social supports. Those commitments exacerbate pressure on public finances, raising borrowing needs and adding to scrutiny from markets and credit-watchers over medium-term fiscal sustainability.

Financial markets are already sensitive to any signs of widening hostilities. Investors typically reprice risk by shifting into safe-haven assets such as U.S. Treasuries and gold, while regional equities and corporate bonds face bouts of volatility. For Israel, tourism receipts and foreign direct investment remain depressed relative to prewar levels, and political uncertainty tied to hostage negotiations and coalition stability further dampens investor appetite. Defense contractors and related industries, conversely, have tended to see increased investor interest during periods of heightened tension.

Policy choices in the coming days will matter for both diplomacy and markets. For Netanyahu, a meeting with Trump provides an opportunity to secure U.S. political cover and possibly new security commitments, but it also risks domestic backlash if perceived as prioritizing high-level diplomacy over the immediate search for hostages or civilian protection. For Washington, engagement is a balancing act between backing an ally’s security needs and pressing for steps that could facilitate humanitarian access and a durable cease-fire.

Longer term, analysts warn that repeated cycles of escalation and limited cease-fires entrench economic scarring: infrastructure damage, prolonged displacement and investor wariness that depress growth trajectories for both Gaza and Israel. Whether the coming diplomatic push yields a meaningful de‑escalation or merely a pause will determine not only political fortunes in Jerusalem and Washington but also the contours of regional economic recovery and financial stability.