GAZA CITY, Gaza Strip - Israeli troops made their deepest advance into the Gaza Strip's most heavily populated area on Sunday, encountering increasingly fierce resistance from Hamas fighters as they warned civilians to stay clear of the battle zone.
Speaking to his Cabinet, Israeli Prime Minister Ehud Olmert said the country "is nearing" its goals, but that the offensive will continue despite global calls for a cease-fire, led by the U.N. Security Council.
Israel's military said it sent reserve troops into Gaza, signaling possible preparations for a third phase of the offensive - a day after warning the strip's 1.4 million residents that it plans to escalate the devastating air and ground assault.
Gaza medical officials say more than 800 Palestinians have died in the offensive, launched Dec. 27 to halt years of Palestinian rocket attacks on its southern towns.
Hamas militants launched barrages of rockets Sunday at the Israeli city of Beersheba and at the town of Sderot.
Despite the continued fighting, Egypt has been trying to broker a truce. Germany's foreign minister was in Israel on Sunday to promote the U.N. proposal, and Israel planned to send a senior defense official to Egypt later in the week. U.N. Secretary-General Ban Ki-moon plans to travel to the region this week.
Palestinian witnesses said Israeli troops moved to within half a mile of Gaza City's southern neighborhoods, and within a quarter-mile of the northern neighborhood of Sheikh Ajleen.
The fighting in Sheikh Ajleen erupted before dawn and continued into the morning as Israeli infantrymen and tanks advanced toward Gaza City and its approximately 400,000 residents, Palestinian witnesses said.
"We are safe, but we don't know for how long," said Khamis Alawi, 44, a Sheikh Ajleen resident who huddled with his wife and six children in their kitchen overnight. He said bullets riddled his walls and several came in through the windows.
Hamas and the smaller militant group Islamic Jihad said they ambushed the Israelis, leading to some of the heaviest fighting since Israel sent ground forces into the coastal territory on Jan. 3. An Israeli military spokesman said he had no information on any ambush.
Gunfire subsided in the early afternoon, with the Israelis in control of buildings on the neighborhood's outskirts. Israeli tanks later withdrew from the area.
Palestinian medical officials said at least 20 Palestinians were killed in fighting by midday. There were no reports of Israeli casualties.
Israel began the offensive with a weeklong aerial blitz, before launching a ground invasion on Jan. 3. Gaza medical officials say more than 869 Palestinians have died, at least half of them civilians.
The Israeli military says troops have killed some 300 armed fighters since the ground offensive began and that many more were killed in the air phase. Thirteen Israelis have died, three of them civilians.
A top Israeli defense official said Hamas has been badly hurt by the offensive in Gaza - especially by the deaths of senior militants and shortages of ammunition - but predicted that the group would fight on.
The group "is not expected to raise a white flag," military intelligence chief Amos Yadlin told the Israeli Cabinet Sunday.
The U.N. Security Council called for an immediate cease-fire Thursday, but Olmert said Israel "never agreed that anyone would decide for us if it is permissible to strike at those who send bombs against our kindergartens and schools."
Hamas, the Islamic group that seized control of Gaza in June 2007, likewise has ignored the resolution, complaining that it was not consulted. Hamas' government has not been internationally recognized.
Israel dropped leaflets on Gaza City on Saturday warning of a wider offensive.
"The IDF (Israeli Defense Forces) is not working against the people of Gaza but against Hamas and the terrorists only," the leaflets said in Arabic. "Stay safe by following our orders."
On Sunday, it dropped additional leaflets urging Gaza residents to report the whereabouts of Hamas fighters, even providing a phone number to call.
"You can call the numbers listed below to inform us about the locations of rocket launchers, warehouses, tunnels and terrorist groups operating in your area," said the leaflet, promising "confidentiality guaranteed."
Israeli defense officials say they are prepared for a third stage of their offensive, in which ground troops would push further into Gaza, but are waiting for approval from the government.
The first phase was the massive aerial bombardment, and the second saw ground forces enter Gaza, seize open areas used to fire rockets and surround Gaza City.
The officials, speaking on condition of anonymity because military plans have not been made public, said the army also has a contingency plan for a fourth phase - the full reoccupation of Gaza and toppling of Hamas. Israel withdrew from Gaza in 2005 after 38 years of military occupation.
Israeli warplanes bombed targets along the Egypt-Gaza frontier near the town of Rafah early Sunday, shattering windows at the border terminal. The area is riddled by tunnels used to smuggle weapons and supplies into Gaza, and has been repeatedly bombed throughout the Israeli offensive.
Most of those killed Sunday were noncombatants, medical officials said, including four members of one family killed when a tank shell hit their home near Gaza City. The military says Hamas fighters are wearing civilian clothes and endangering civilians by operating out of heavily populated residential areas.
Palestinian witnesses said Israeli forces fired phosphorus shells early Sunday at Khouza, a village near the border, setting a row of houses on fire. Hospital official Dr. Yusuf Abu Rish said a woman was killed and more than 100 injured, most suffering from gas inhalation and burns.
Israeli military spokesman Capt. Guy Spigelman denied the claims. One of the main uses of phosphorous shells is to create smoke and mask ground forces, which is legal under international law, but the chemical can be harmful if used in densely populated areas.
Israel wants guarantees that any cease-fire would end Hamas rocket fire and weapons smuggling from Egypt.
Hamas is demanding that Israel open Gaza's blockaded border crossings. Israel is unlikely to agree to that condition unless international monitors ensure the border is not used to bring weapons into the territory.
The rising death toll of civilians has put heavy pressure on Israel to halt the offensive. Israeli leaders have so far rejected the international criticism.
One of the deadliest single incidents was an Israeli strike near a U.N. school Tuesday that Gaza health officials said killed 39 Palestinians. On Sunday, Israeli defense officials said an investigation by the military concluded that an Israeli mortar shell missed its target and hit near the school.
The defense officials spoke Sunday on condition of anonymity because the investigation has not been made public, and there was no official comment from the military.
The U.N. agency in charge of Palestinian refugees resumed operations after suspending them because of Israeli attacks on its convoys. U.N. aid vehicles were moving around Gaza on Sunday and U.N. workers tended to about 30,000 people in shelters, but aid officials warned that the dire security situation made it impossible to operate at full capacity.
"This is a very small fraction of what we normally do in the Gaza Strip," said Filippo Grandi of the U.N. Relief and Works Agency. "Things might get worse."