Israeli forces edged into the Gaza Strip's most populous area on Sunday, killing at least 14 Palestinian guerrillas and 12 civilians in an offensive stepped up in defiance of international calls for a ceasefire.

Hamas leader Khaled Meshaal said his ruling Islamist group would not consider a ceasefire until Israel ended its 16-day-old air, sea and ground assault and lifted a Gaza blockade.

A Hamas delegation held talks in Cairo on an Egyptian truce plan.

Israel, describing as unworkable a UN Security Council resolution calling for a ceasefire, wants a halt to Palestinian cross-border rocket attacks and arrangements to ensure that Hamas cannot rearm through tunnels under the Egypt-Gaza border.

An Israeli defence official was to visit Egypt on Monday to press for tougher anti-smuggling measures.

Backed by helicopter gunships, Israeli troops and tanks pushed into eastern and southern parts of the city of Gaza, confronting Hamas militants who fired anti-armour missiles and mortar bombs.

"Israel is getting close to achieving the goals it set for itself," Israeli Prime Minister Ehud Olmert told his cabinet, citing a desire "to change the security situation in the south", a reference to the Hamas rockets threat.

A total of 868 Palestinians, many of them civilians, and 13 Israelis --- three civilians hit by rocket fire and 10 soldiers --- have been killed since Israel's offensive began on December 27.

New street fighting killed 10 gunmen, Palestinian medical workers said. Another three militants were killed by Israeli air strikes.

Witnesses said Israeli tank fire in Beit Lahiya, in the northeastern Gaza Strip, killed five women and a man who had returned to their abandoned homes to take showers, and a woman in Nusseirat in the central part of the territory.

Four members of a family, one a member of a Hamas police force, were killed in an air strike on a house north of Gaza and another civilian was killed outside the southern town of Khan Younis, medical workers said.

Israeli shelling of two villages south of the city of Gaza killed a woman and set 15 houses on fire, witnesses said. Some 50 people suffered from burns and gas inhalation, they said.

Israel's military said it attacked a mosque used to store weapons, 10 squads of gunmen, three rocket-launching sites and the house of Hamas commander.

Though Palestinian rocket salvoes have diminished, two rockets on Sunday struck Beersheba, 42 km (26 miles) inside Israel, police said. There was some damage but no casualties.

Olmert convened his cabinet for a discussion expected to include a possible "third stage" of the offensive in which the military would storm into Gaza's urban areas.

In broadcast remarks, Olmert gave no timeframe for the Gaza operations, saying only that Israel "must not miss out, at the last moment, on what has been achieved through an unprecedented national effort".

While Israeli commanders said whole Hamas battalions were being wiped out, Damascus-based Meshaal said Israeli forces had achieved nothing and pointed to the continued rocket fire. - Reuters