Israel bombed dozens more targets in the Gaza Strip on Monday and said that, while it was prepared to step up its offensive by sending in troops, it preferred a diplomatic solution that would end Palestinian rocket fire.
Egypt said a deal for a truce could be close, though by late evening there was no end to six days of heavy missile exchanges as Israeli Prime Minister Benjamin Netanyahu discussed his next steps with his inner circle of senior ministers.
The leader of Hamas, speaking in Cairo, said it was up to Israel to end a new conflict that he said it had started. Israel, which assassinated a Hamas military chief on Wednesday, says its air strikes are to halt Palestinian rocket attacks.
Khaled Meshaal, exiled leader of Hamas, said a truce was possible but the Islamist group, in charge of the Gaza Strip since 2007, would not accept Israeli demands and wanted Israel to halt its strikes first and lift its blockade of the enclave.
"Whoever started the war must end it," he told a news conference in Cairo, adding that Mr. Netanyahu, who faces an election in January, had asked for a truce, an assertion a senior Israeli official described as untrue.
With positions far apart on a comprehensive deal, some close to the negotiations suggested Egypt is first seeking a halt to fighting before other conditions are discussed. They spoke on condition of anonymity because the talks are in a sensitive stage.
International pressure for a ceasefire puts Egypt's new Islamist President in the spotlight. Mohamed Morsi – who has his roots in Hamas's spiritual mentors, the Muslim Brotherhood – is acting as a mediator in the biggest test yet of Cairo's 1979 peace treaty with Israel since the fall of Hosni Mubarak early last year.
"I think we are close, but the nature of this kind of negotiation, [means] it is very difficult to predict," said Egyptian Prime Minister Hisham Qandil, who visited Gaza on Friday in a show of support for its people.
Mr. Morsi took a call from U.S. President Obama on Monday, who told him the group must stop rocket fire into Israel, effectively endorsing Israel's stated aim in launching the offensive last week. Mr. Obama, as quoted by the White House, also said he regretted civilian deaths – which have been predominantly among the Palestinians.
With the power balances of the Middle East drastically shifted by the Arab Spring during a first Obama term that began two days after Israel ended its last major Gaza offensive, the newly re-elected U.S. President faces testing choices to achieve Washington's hopes for peace and stability across the region.
UN Secretary-General Ban Ki-moon, touring the region in the hopes of helping to broker a peace deal, arrived in Cairo, where he met Egypt's Foreign Minister in preparation for talks with Mr. Morsi on Tuesday. He also plans to meet Mr. Netanyahu in Jerusalem.
For Israel, Vice-Prime Minister Moshe Yaalon has said that "if there is quiet in the south and no rockets and missiles are fired at Israel's citizens, nor terrorist attacks engineered from the Gaza Strip, we will not attack."
Mr. Yaalon also said Israel wanted an end to guerrilla activity by Gaza militants in the neighbouring Egyptian Sinai Peninsula.
Although 84 per cent of Israelis support the current Gaza assault, according to a poll by Israel's Haaretz newspaper, only 30 per cent want an invasion.
"Israel is prepared and has taken steps and is ready for a ground incursion, which will deal severely with the Hamas military machine," an official close to Mr. Netanyahu told Reuters.
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