The sounds of explosions and heavy machinegun fire echoed through the city of 500,000 after Israeli tanks drew nearer but did not enter its densely populated center, local residents said.
Medical workers said 12 Palestinian gunmen, some of them members of the Islamist Hamas group that rules the Gaza Strip, were killed in morning fighting.
Hamas said its forces detonated explosives beneath Israeli armor and fought with Israeli forces backed by helicopter gunships and naval fire.
Israel aircraft attacked 60 targets, including tunnels used by Gaza militants to smuggle arms across the border from Egypt, weapons-making facilities and Hamas command posts, the military said. Two rockets hit the Israeli city of Beersheba, causing no casualties.
"We have achieved a lot in hitting Hamas and its infrastructure, its rule and its armed wing, but there is still work ahead," Lieutenant-General Gabi Ashkenazi, chief of staff of Israel's armed forces, told a parliamentary committee.
"We are working to deepen the blow to its military arm, reduce (Hamas) fire, strengthen (Israeli) deterrence and improve the security situation for residents of southern Israel living under the threat of (rocket) attacks," he said.
Earlier, an Israeli general speaking to reporters touring Israeli positions, said his forces were "tightening the encirclement" of the city of Gaza.
U.N. Secretary-General Ban Ki-moon was heading to the region for a week of talks with leaders in Egypt, Israel, Jordan and Syria aimed at ending the bloodshed.
"My message is simple, direct, and to the point: the fighting must stop. To both sides, I say: Just stop now," Ban told reporters before his departure.
Palestinian medical officials said at least 925 people in the Gaza Strip have been killed since Israel began its offensive on December 27. The health minister in Gaza's Hamas-run government said close to 400 of those were women and children.
Thirteen Israelis -- 10 Israeli soldiers and three civilians hit by mortar bombs and rockets from the Gaza Strip -- have been killed.
Egypt pursued efforts to broker a ceasefire, 18 days after Israel began its attack in the Gaza Strip saying it aimed to halt cross-border rocket fire, salvoes that have caused few casualties but disrupt life in southern Israeli communities.
Lebanese political sources said Hamas negotiators would on Tuesday reject Cairo's proposals.
A Lebanese source close to Hamas said the group wanted a truce for a limited time only.
"VICTORY"
Human rights groups report shortages of vital supplies including water, in the Gaza Strip, due to the fighting. A fuel shortage has brought frequent power blackouts. Israel has permitted almost daily truck shipments of food and medicine.
Hamas's leader in Gaza, Ismail Haniyeh, said on television on Monday it was ready to negotiate a ceasefire but only if Israel pulled back all its forces and ended a blockade it tightened after Hamas seized the Gaza Strip in 2007.
Speaking from a secret location, he said "victory is at hand."
Israel has rejected a U.N. Security Council call for a truce but said it was ready to discuss proposals, insisting a ceasefire include measures to stop Hamas from rearming through tunnels in a Gaza-Egypt frontier area known as the Philadelphi corridor.
As diplomats worked with Egypt on a truce, Israeli army spokesman Brigadier General Avi Benayahu said Israeli forces were "deeper in the territory" but had yet to launch a "Phase 3" of the war following its air and ground offensive.
An all-out push into densely populated areas could lead to heavy casualties on both sides, a politically risky outcome for Israel's government less than a month before a national election.
Israeli cabinet minister Shaul Mofaz said Israel was "very, very close" to achieving the goals of the campaign, the deadliest it has waged against Palestinians in decades.
"I assume that in the coming week, the situation will be assessed and a decision made at a cabinet meeting on whether and how to continue the operations," Mofaz told Army Radio.
The bloodshed has opened faultlines in the map of Middle East diplomacy, with the Bush administration in its final week standing behind Israel, Europe pressing Israel to call off its attacks and Arab leaders speaking out against the Jewish state.
The Israeli military said troops at a border crossing with Jordan came under fire from the kingdom on Tuesday, but that no one was hurt. Jordan, which signed a peace treaty with Israel in 1994, denied any shooting had occurred.
(Additional reporting by Ari Rabinovitch, Adam Entous, Ori Lewis, Alastair Macdonald, Luke Baker, Alistair Lyon, Jeffrey Heller and Joseph Nasr in Jerusalem, Dan Williams in Gaza and Alaa Shahine in Cairo; Writing by Jeffrey Heller, editing by Samia Nakhoul)by http://www.reuters.com
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