To reply with nukes would be commiting suicide for the Israelis. The burst radius would cover part of their own country, remember that Gaza is very small, like putting a nuke in Central Park....and hoping that there isn't any damage outside of it....won't work.
Using nukes, even neutron warheads, so close to your own territory isn't a very smart move. We could chop a few BUFFs and Bones to the IDF/AF that could do a good job with conventional weapons. Someone needs to fill up several MOAB sized devices with salt for the final treatment.
Uh, you'd better look at a good map of the area before you ask that question....
>>Will it be nukes in retaliation?<<
Can nuke the PA areas - too close. Syria is another question but that's probably still a "no."
I hardly think so. Dou realise how small these countries are? A nuke in palestine will be as good as a nuke in Israel.