Israel said its Gaza offensive could be "in the final act" on Friday and sent envoys to discuss truce terms after Hamas made a ceasefire offer to end three weeks of fighting that has killed more than 1,100 Palestinians.

However, Israel rejected at least two major elements of the ceasefire terms outlined by the Islamist movement, and fighting continued, albeit with less intensity than on Thursday.

The inauguration of new US president Barack Obama on Tuesday is seen by some as the time by which Israel will bow to mounting international pressure and call off its attacks.

UN Secretary General Ban Ki-moon, continuing his tour of the region, again said he expected a ceasefire deal within days but urged Israel to stop firing immediately. "It is time now to even think about a unilateral ceasefire," he said in Ramallah.

At least five rockets landed in Israel from Gaza, the army said. Israeli air strikes killed four Palestinians, three of them guerrillas and one a civilian, medics and militants said.

"Hopefully we're in the final act," Prime Minister Ehud Olmert's spokesman Mark Regev said, adding that briefings by the envoys working in Washington and Cairo on Friday could be followed by swift decisions by the security cabinet.

Such decisions could come by Saturday, Israeli officials said, as Palestinians in the Gaza Strip savoured a relative lull after intense combat on Thursday that many had seen as a final Israeli push before agreeing to ceasefire terms.

"The conditions have not come to fruition yet," security cabinet member Binyamin Ben-Eliezer said. "But this could well happen late on Saturday and we can put this story behind us."

Hamas rocket fire was more limited than before. It was far from clear if that was significant but the end of rocket fire was Israel's main demand in launching its offensive on December 27.

After another uneasy night during which Israeli aircraft struck 40 targets in the crowded coastal enclave, Friday morning dawned relatively quietly on a population stunned by the extent of advances by Israeli tanks into the city of Gaza on Thursday.

Medics taking advantage of a four-hour "humanitarian pause" said they had recovered 23 bodies on Friday from the previous day's fighting in the Tel al-Hawa neighborhood in the city's southwest, scene of some of the most intense clashes.

Diplomats have spoken with growing confidence that some kind of ceasefire will be arranged in the coming days and suggested that Israel had been making a last push against its Islamist enemies before a deal was brokered.

An Israeli air strike on Thursday killed one of Hamas's top leaders, Saeed Seyyam, the interior minister in Gaza's unrecognized government and leader of 13,000 armed security men.

Nine other people were killed in that bombing. Chanting crowds attended Seyyam's funeral on Friday.

Israeli foreign minister Tzipi Livni, whose prospects in a February 10 election may have been improved by the short war costing no more than 13 Israeli lives, was to hold talks on Friday in Washington with the outgoing Bush administration.

US secretary of state Condoleezza Rice told Olmert that Washington, his most important ally, would commit in writing to steps to prevent Hamas from rearming through smuggling tunnels from Egypt, the Jewish state's main condition for a lasting ceasefire.

Egypt is mediating between Israel and Iranian-backed Hamas, which is shunned by Israel and its Western allies for its refusal to abandon an objective of destroying the Jewish state by force and establishing an Islamist state in all of what was Palestine before the creation of Israel in 1948.

Amos Gilad, a senior Israeli official, arrived in Cairo again on Friday. "When we are briefed by Gilad and Livni, there may be a full security cabinet meeting and decisions will stem from that," Regev said.

Hamas and diplomatic so