Officials dismissed the threat to freeze normalisation of relations under the peace process as another stage in a mounting propaganda campaign against the decision to build 6,500 Jewish homes on Har Homa in Arab East Jerusalem.
They were disturbed by it, but not broken. At worst, Israel would lose diplomatically. "We benefit," a government spokes-man, David Bar-Illan, told The Independent, "because we want to normalise relations with the Arab world. From the economic point of view, it wouldn't make any substantial difference to us."
The Prime Minister, Benjamin Netanyahu, denounced the Arab foreign ministers' resolution as "a step backward from peace". He predicted that any attempt to revive the economic boycott of Israel would fail. "We're a strong country with a strong economy," he said. "It didn't work before. It won't work now."
He rejected any idea of suspending construction on the Har Homa site. His government was determined to continue building in Jerusalem for both Jews and Arabs - a public relations line which has singularly failed to convince world opinion since the Cabinet took its decision a month ago.
Israel, Mr Netanyahu insisted, wanted to achieve peace, but that had to mean an end to threats and violence. "We're not going to redivide Jerusalem on that basis, and we're certainly not going to accept a concept of peace that is based on continual threat and blackmail."
The Labour opposition took a less complacent view of the Cairo offensive. Ehud Barak, the frontrunner to succeed Shimon Peres as party leader, called on Mr Netanyahu to stop the dangerous escalation and resume normal contacts with leaders of the Arab world.
"It is very disturbing," Mr Barak said, "the way we are isolating ourselves with this policy of destroying the mutual confidence so intricately nurtured by the late Yitzhak Rabin and by Shimon Peres."
The Clinton administration's Middle East peace envoy, Dennis Ross, left empty-handed last week, but there are reports that the Secretary of State, Madeleine Albright, is planning to bring a new compromise formula on her first official visit to the region.
That visit promises to be more and more difficult, as each day passes. The Arab League's recommendation to freeze Arab-Israeli relations and reimpose a trade boycott may sound like familiar rhetoric, but it is a further symbol of the ever-quickening decay of the American-Israeli "peace process". No one could have imagined, even a year ago, that Arab foreign ministers would be voting to return to the Middle East cold war - and Washington's continuing refusal to understand the depth of betrayal now felt by Arab kings and dictators will only allow the crisis in the region to deteriorate at a faster rate.
Every day brings a further crack in the crumbling edifice of the "peace process" in which the world was once asked to believe and to invest millions of dollars. Farouk al-Sharaa, the Syrian foreign minister, insisted that the Arab League's decision was intended to persuade Israeli public opinion to make Mr Netanyahu reconsider his decision to build a new Jewish settlement on occupied land; in truth, only America can do that - and two US vetoes of UN Security Council resolutions condemning the settlement prove this is a vain hope.
What, in any case, is a cold peace with the Arabs worth to Israel? In Egypt, for example, ElAl cannot even fly into Cairo with its name on aircraft. Tour-ism between Israel and Egypt has virtually collapsed. In Jordan, King Hussein's horror at the murder by a Jordanian soldier of seven Israeli schoolchildren has not been matched by his people. The Jordanian Bar Association has been overwhelmed with lawyers offering to defend the soldier responsible for the slaughter. The king has since replaced his Prime Minister with the man who signed the peace treaty with Israel, further isolating himself from the Palestinian population.
The Arab League's recommendation to break off multilateral talks with Israel on water, economic cooperation, refugees, the environment and disarmament further destroys one of the dwindling American hopes of a continued "peace process". The original "land-for-peace" deal promised the Arabs before the 1991 Madrid summit in a series of letters from then Secretary of State James Baker - which the European Union wholeheartedly supported - has effectively been torn up. Very dark days, therefore, appear to lie ahead.
Europe can save peace, page 14