The Lebanese government doesn't want Hezbollah to keep sniping at Israel in the Shebaa Farms area, which is not even part of Lebanon. The Israelis are also hoping to make the Syrians aware that their own considerable economic stake in Lebanon is in jeopardy if Hezbollah attacks continue. So now Israelis are waiting for the backlash on all fronts. A few years ago, Yitzhak Rabin had inspired them with the possibility of living in peace, and now they're being told by Sharon, and by their own experience of the past six months, that peace is not possible. That has to take its toll on the national psyche.
Morale is very low.
Israelis are living a constricted version of the lives they were living before. You can see it most clearly at large public events. Many Purim parades were canceled, and the mass Maimuna celebrations that mark the end of Passover in Jerusalem were very poorly attended. No one is under any illusion that Sharon has all the answers, but right now they're expecting less. They feel closed in, under siege.