By Dan Williams JERUSALEM (Reuters) -Israel announced it was setting up a national inquiry on Monday after a newspaper reported illicit use by police of powerful spyware against confidants of former Prime Minister Benjamin Netanyahu and other public figures. Pegasus, a cellphone hacking tool made by Israel’s NSO Group, was used to “phish for intelligence even before any investigation had been opened against the targets, and without judicial warrants”, Calcalist said in an unsourced report. The furore has added a domestic angle to allegations that surfaced last year of misuse of Pegasus by fore…