In an interview at the start of a year that he hopes will yield a permanent Israeli-Palestinian peace accord, the prime minister said many rival Israeli political parties remain "detached from the reality" that requires Israel to compromise "on parts of Eretz Yisrael" in order to maintain its Jewish, democratic nature. If Israel "will have to deal with a reality of one state for two peoples," he said, this "could bring about the end of the existence of Israel as a Jewish state. That is a danger one cannot deny; it exists, and is even realistic."

Indeed, his primary responsibility as prime minister, Olmert said, lay in ensuring a separation from the Palestinians. "What will be if we don't want to separate?" he asked rhetorically. "Will we live eternally in a confused reality where 50 percent of the population or more are residents but not equal citizens who have the right to vote like us? My job as prime minister, more than anything else, is to ensure that doesn't happen."

The reality in which Israel was seeking an accommodation, he elaborated, includes a situation in which even "the world that is friendly to Israel - that really supports Israel, when it speaks of the future, it speaks of Israel in terms of the '67 borders. IT SPEAKS OF THE DIVISION OF JERUSALEM."

"It's a coincidence that is almost 'the hand of God,'" Olmert said, "that Bush is president of the United States, that Nicolas Sarkozy is the president of France, that Angela Merkel is the chancellor of Germany, that Gordon Brown is the prime minister of England and that the special envoy to the Middle East is Tony Blair."

"The imperative", he said, "was to make every effort for progress while this array of supportive characters remained in place. What possible combination," he asked, "could be more comfortable for the State of Israel?"

But despite the chaos caused by the credit squeeze, London's blue chip index the FTSE 100 has risen by 3.8pc since the start of 2007, along with a host of other equity markets around the world. Although sterling rose yesterday against other world currencies, it has fallen by 6.1pc in the past year, which is the biggest annual decline since 1992 - the year in which Britain was ejected from the European Exchange Rate Mechanism. The sterling exchange rate index, which compares the pound with a comprehensive basket of currencies, finished the year at 97.9, having weakened by 6.7pc in the past six months.

The currency's dramatic fall follows news earlier in December of a sudden doubling of the size of Britain's current account deficit, and comes amid growing speculation that the Bank of England will cut interest rates more aggressively than anticipated. Having risen above the $2.10 mark against the US dollar, the UK currency is now back at $2, and is expected eventually to drop to $1.80 or lower.

Economists fear the housing market slowdown could cause a recession in Britain. Experts at Dresdner Kleinwort put the chances of such an eventuality at 50-50.

Health Secretary Francisco Duque said hospitals from all over the country had reported 450 cases of injuries from New Year's Eve celebrations. There were no deaths. Last New Year's Eve, more than 600 people were wounded, and at least seven were killed in celebrations that began at Christmas.

The Christmas/New Year holiday season is avidly celebrated in the Roman Catholic nation with widespread street fiestas and parties in malls and restaurants. Streets and parks are the venue for noisy fireworks displays and some mark midnight by firing into the air. Many Filipinos believe that a noisy beginning to the New Year will drive away bad luck and evil spirits.

The economic butterfly effect would eventually cause deals worth billions of dollars to fall apart; the first run on a British bank in 140 years; some of the most powerful figures on Wall Street losing their jobs; wild gyrations on the markets; and dire warnings that the world is on the brink of recession. At the start of the year, stockmarkets were at six-year highs and £40bn worth of mergers and takeovers were awaiting completion. Private equity firms and hedge funds were gorging themselves on cheap money and a handful of secretive, hugely wealthy individuals were becoming increasingly influential. But it was the millions on more modest incomes who would ultimately shape the events of 2007.

As the US housing market cooled and interest rates rose, many on the bottom rungs of the economic ladder found it difficult to meet their monthly mortgage repayments. The first real concerns about sub-prime mortgages emerged at the end of February, when Wall Street suffered its worst day since the terrorist attacks of 2001. By April one of the biggest sub-prime mortgage lenders in the US had gone bankrupt and there was talk of a full-blown crisis. Credit more broadly began to dry up as lenders became nervous.

The credit crunch was behind the biggest story of the year, Northern Rock. It emerged in September that the bank had been forced to apply to the Bank of England for emergency funds as liquidity had dried up in the market. Savers were told not to panic. But they did anyway. The next day, there were long lines of people threading through high streets across Britain, hoping to retrieve their cash. The stricken bank has received £25bn of taxpayers' cash.

The numbers just kept getting bigger. This month the Swiss bank UBS wrote off a further $10bn of sub-prime loans, on top of $3.4bn already announced. Two days later the Bank of England joined other central banks in pouring £50bn into the financial markets in the hope of staving off a meltdown. A succession of Wall Street banks have turned to sovereign funds in China, Singapore and the Middle East for injections of cash. The unravelling of events has been a stunning example of how interdependent the world economy has become.

Confidence appears to be ebbing. Retailers in Britain were forced to slash prices before Christmas to shift stock. According to the Royal Institute of Chartered Surveyors, house prices in Britain are falling at their fastest rate in two years. The outlook for jobs is the worst for a decade.

Gold reached a session high of $843.20 a troy ounce on Monday, the highest level since January 1980, when bullion reached a record $850 during a period of intense geo-political tensions including the US hostage crisis in Iran and the Soviet Union's invasion of Afghanistan. Dealers said thin trading conditions were contributing to price volatility for precious metals and that there was a reluctance to go short (bet on price weakness) ahead of the New Year break as the situation in Pakistan was so unstable.

Officials in Pakistan will decide later on Tuesday whether to go ahead with the election for president later this month as outbreaks of sporadic violence continued across the country. Jude Brhanavan of Deutsche Bank pointed out that 2007 marked the sixth consecutive year of positive returns for gold so this represented the longest price rally for gold in history.

Geo-political concerns also provided support for oil prices. On Sunday, Iran's foreign minister said the country's first atomic power plant would start operations by the middle of 2008, renewing concerns about Teheran's nuclear ambitions. Nymex February West Texas Intermediate gained 33 cents at $96.33 a barrel while ICE February Brent rose 59 cents to $94.47 a barrel.

Platinum prices appeared to be finishing the year on a strong note, tradng at $1,524 a troy ounce, not far short of the record $1,542 reached last week. The platinum market remains extremely tight with disruptions to supplies being caused by fatalities in South Africa's mning industry while demand has reached record levels supported by growing consumption in the autocatalyst sector.

Odinga supporters in his western stronghold, Kisumu, torched gas stations and more violence erupted in towns across the country. In Nairobi, walls of flame 20 feet high consumed homes in the slums. Crowds chanted "No Raila, no peace!" - a slogan that has become their rallying cry in the days since the vote. Many stores closed and there was panic buying at those that stayed open. Damage was extensive. Ann Wanjiru, a woman's activist in a massive slum called Mathare, in eastern Nairobi, said: "Everything is just gone. Where most of the people live, the poorest people, it has all been destroyed."

While both sides pleaded for calm, there were fears the violence could aggravate an enduring national tribal split between Luos, who support Odinga, and Kikuyus, who back Kibaki. The two groups co-exist in an uneasy rivalry in Kenya.

On Monday, crowds of Kikuyus in the west of the country were reported to be fleeing across the border to Uganda, while six Kikuyus were hacked to death in the popular tourist port city of Mombasa. Police, given orders to shoot rioters on sight, imposed a curfew at locations across the country and barred people from leaving the slums, a tactic which may have contained the violence but also kept innocent people from fleeing. KTN, the national broadcaster, said 124 people had been killed, but other media tallies put the death toll closer to 150.

The chaos represents Kenya's biggest domestic political crisis since independence from Britain in 1963. It was also a major disappointment for a country that had been considered a bright spot in the troubled region of East Africa.

Increased garden bird feeding by people is also fuelling the migration, said the British Trust for Ornithology. A survey by 16,500 householders found wood pigeons in 46% of London gardens, compared to just 27% for the more familiar feral pigeon. The BTO said it was "amazing" how quickly the wood pigeon had adapted.

It says that a decade ago the wood pigeon did not appear in the list, but now it is the fourth most common species identified. The BTO put the shift down to changes in farming practices, such as sowing cereals in autumn which leaves the birds without areas of crop stubble to feed on over the winter.

The blood-sucking nocturnal creatures have infested a Park Ave. penthouse, an artist's colony in Williamsburg, Brooklyn, a $25 million Central Park West duplex and a theater on Broadway, according to victims, exterminators and elected officials. Once linked to flophouses and fleabags, bedbug outbreaks victimize the rich and poor alike and are spreading panic in some of the city's hottest neighborhoods.

"In the last six months, I've treated maternity wards, five-star hotels, movie theaters, taxi garages, investment banks, private schools, white-shoe law firms, Brooklyn apartments in Greenpoint, DUMBO and Cobble Hill, even the chambers of a federal judge," said Jeff Eisenberg, owner of Pest Away Exterminating on the upper West Side. The numbers are off the charts: In 2004, New Yorkers placed 537 calls to 311 about bedbugs in their homes; the city slapped 82 landlords with bedbug violations, data show.

In the fiscal year that ended in June, 6,889 infestation complaints were logged and 2,008 building owners were hit with summonses. Bedbugs come out of the woodwork at night to feed on human blood, biting people in their sleep and leaving large, itchy skin welts that can be painful. They are not believed to carry or transmit diseases.

In the past three years, more than 900 inmates at the prison have contracted the fever, a fungal infection that has been both widespread and lethal. At least a dozen inmates here in Central California have died from the disease, which is on the rise in other Western states, including Arizona, where the health department declared an epidemic after more than 5,500 cases were reported in 2006, including 33 deaths.

Endemic to parts of the Southwest, valley fever has been reported in recent years in a widening belt from South Texas to Northern California. The disease has infected archaeologists digging at the Dinosaur National Monument in Utah and dogs that have inhaled the spores while sniffing for illegal drugs along the Mexican border.

In most cases, the infection starts in the lungs and is usually handled by the body without permanent damage. But serious complications can arise, including meningitis; and, at Pleasant Valley, the scope of the outbreak has left some inmates permanently disabled, confined to wheelchairs and interned in expensive long-term hospital stays. About 80 prison employees have also contracted the fever, Pleasant Valley officials say, including a corrections officer who died of the disease in 2005.

What makes the disease all the more troubling is that its cause is literally underfoot: the spores that cause the infection reside in the region's soil. When that soil is disturbed, something that happens regularly where houses are being built, crops are being sown and a steady wind churns, those spores are inhaled. The spores can also be kicked up by Mother Nature including earthquakes and dust storms.

The Conservative leader told the Daily Mail he will "not let matters rest" if Gordon Brown succeeds in forcing the controversial treaty through Parliament and into law. His intervention ratchets up the pressure on Mr Brown over the document which is likely to dominate debate at Westminster in the New Year. Ministers are hoping to bore voters into submission by allowing weeks of lengthy discussion on the treaty.

But Conservative MPs and a band of Labour rebels are promising the biggest parliamentary showdown over Europe since the Maastricht Treaty plunged John Major's government into turmoil in the 1990s. Mr Brown plans to use Labour's Commons majority to push the treaty into British law despite a manifesto promise at the last election to ask for voters' approval in a referendum. The Prime Minister insists that the constitutional element of the treaty has been abandoned, making a vote unnecessary.

But most other EU leaders admit that it is virtually the same as the original version, which was rejected by voters in France and the Netherlands in 2005. It will still create the first full-time EU president and foreign affairs chief, give the EU its own legal personality like a nation state, and do away with Britain's right to reject EU proposals in more than 40 policy areas. Labour ministers will seize on Mr Cameron's remarks as evidence that he is prepared to renegotiate Britain's entire relationship with the EU. His commitment to unpick the treaty after it has been implemented could even lead to Britain being forced to leave the EU altogether, they will claim.

Dr Rowan Williams said that those who discard rubbish and materials too easily are likely to do the same to people and relationships. In a New Year message filmed in Canterbury Cathedral and at a nearby recycling centre, the Archbishop stressed his concern for the environment and the moral necessity of protecting it. He said that short-term exploitation of the earth's resources which produces fantastic quantities of waste has implications for other areas of life.

"In a society where we think of so many things as disposable - where we expect to be constantly discarding last year's gadget and replacing it with this year's model - do we end up tempted to think of people and relationships as disposable?" Dr Williams asked. The Archbishop adds in his message that God "does not do waste" and does not regard human life as disposable.

"He doesn't regard anyone as a 'waste of space', as not worth his time - from the very beginnings of life to its end, whether they are successful, articulate, productive or not," Dr Williams said.

Ministers could announce the new atomic age as early as next week, when MPs return to the Commons after their Christmas break. The Prime Minister indicated in his New Year message to the country that the Government was prepared to take the "difficult decision" of upgrading nuclear power plants. He believes nuclear power is an effective way of helping Britain meet its energy needs - amid concerns over oil and gas supplies from Russia and the Middle East - while tackling climate change.

The announcement will follow a five-month public consultation which has already been branded a farce by opponents. They are preparing a legal challenge to any pro-nuclear findings. Senior sources in the Department for Business and Enterprise insisted: "Dozens of individuals and organisations have contributed to the consultation and we have taken account of everything they said. "Given the circumstances we will be facing, it is inconceivable that we should prevent nuclear from being part of our energy mix."

Professor Gordon MacKerron of Sussex University, who recently headed a government advisory committee on radioactive waste, admitted he had "serious misgivings about the legitimacy of the consultation process" and called Ministers' position on the economics of nuclear power "overly optimistic.

A lethal mix of binge drinking and unprotected casual sex will also mean a sharp increase in sexually-transmitted diseases. The warning from the Marie Stopes International organisation, which carries out around one in three UK abortions, comes as Ministers admit their £138million drive to reduce teenage pregnancies is failing.

There are fears that some girls see a termination as just another form of contraception. Abortion in Britain has already reached record levels, with more than 200,000 each year. Nearly one in five are on girls under 18. Labour's liberal licensing laws, which made alcohol widely available into the early hours, are further fuelling casual sex.

The Marie Stopes group said it carried out 6,000 abortions last February, the peak month for young women who become pregnant over Christmas and New Year. The figure was 13 per cent up on 2006, and a similar increase is expected this year. Spokesman Steve Kerridge said: "When alcohol is involved inhibitions come down. It's not just unplanned pregnancies but rampant rates of sexually transmitted infections. It's very difficult to get that message out there."

The number of abortions has risen steadily every year since it was legalised in 1968. Just 23,641 abortions were carried out in that year. In 2006, the most recent year for which figures are available, there were 201,173, up from 194,353 the previous year.

The warnings were followed up by the release this weekend of a new audiotape in which al-Qaida chief Osama bin Laden made an unusually sharp threat of attacks against Israel. According to Israeli security officials, Israel several times received general warnings indicating al-Qaida was attempting to fly operatives into the Jewish state's international airport disguised as tourists carrying foreign passports. The latest warning was received a few months ago and indicated the passports may be from Britain, Australia and the United States.

The security officials said al-Qaida has come to the conclusion Palestinian terror groups operating in the Gaza Strip and West Bank have had great difficulty infiltrating Israel due to the country's security barrier and antiterror measures and that Palestinians who do successfully infiltrate are not capable of carrying out large-scale attacks inside the country.

The Israeli security officials said the latest warning, which was shared with Palestinian intelligence agencies, indicated al-Qaida has made a strategic decision to attempt to send foreign cells into the Jewish state instead of relying on Palestinian militants.

Both Britain and the United States fell into the lowest-performing group of "endemic surveillance societies."

"The general trend is that privacy is being extinguished in country after country," said Simon Davies, director of Privacy International. "Even those countries where we expected ongoing strong privacy protection, like Germany and Canada, are sinking into the mire."

In the United States, the administration of President George W. Bush has come under fire from civil liberties groups for its domestic wiretapping program, which allows monitoring, without a warrant, of international phone calls and e-mail messages involving people suspected of having terrorist links.

"The last five years has seen a litany of surveillance initiatives," Davies said. He said little had changed since the Democrats took control of Congress a year ago."We would expect the cancellation of some programs, the review of others, but this hasn't occurred," Davies said. Britain was criticized for its plans for national identity cards, a lack of government accountability and the world's largest network of surveillance cameras. Davies said the loss earlier this year of computer disks containing personal information and bank details on 25 million people in Britain highlighted the risks of centralizing information on huge government databases.