Mediators worked against the clock on Thursday to extend a truce between Israel and Palestinian militants in Gaza, as the three-day ceasefire went into its final 24 hours.
Israel said it was ready to agree to an extension as Egyptian mediators pursued talks with Israelis and Palestinians on ending a war that has devastated the Hamas-ruled enclave. Palestinians want an Israeli-Egyptian blockade of Gaza to be lifted and prisoners held by Israel to be freed.
"Indirect talks are ongoing and we still have today to secure this," an Egyptian official said when asked whether the truce was likely to go beyond Friday.
"Egypt's aims are to stabilise and extend the truce with the agreement of both sides and to begin negotiations towards a permanent agreement to cease fire and ease border restrictions."
Read: Israel backs Gaza ceasefire extension, Hamas says no agreement yet
The Palestinian delegation was expected to meet Egyptian intelligence officials late on Thursday evening. After a month of bitter fighting, the two sides are not meeting face to face.
Gaza officials say the war has killed 1,874 Palestinians, most of them civilians. Israel says 64 of its soldiers and three civilians have been killed since fighting began on July 8, after a surge in Palestinian rocket salvoes into Israel.
An Israeli official said late on Wednesday that Israel "has expressed its readiness to extend the truce under its current terms" beyond Friday morning's expiry of the three-day deal, which took effect on Tuesday and has so far held.
A senior Israeli minister, Yaakov Peri, said on Army Radio that an extension would be "right for both sides" and added: "Let's hope that reason prevails."Watch: Israel blames Hamas for civilian deaths?
In Gaza, Palestinian factions held a rally, with several thousand supporters urging Hamas to "bomb Tel Aviv". Mushir Al-Masri, a Hamas official, told the crowd that Israel should know that "our fighters are in the battlefield with their fingers on triggers".
A senior official with Hamas's armed wing has threatened to quit the talks in Cairo unless progress is made towards meeting the group's demands. A Hamas source said it was ready to resume fighting once the truce ended if its demands were not met.
A Hamas refusal to extend the ceasefire could further alienate Egypt, whose government has been hostile to the group and which ultimately controls Gaza's main gateway to the world, the Rafah border crossing.
Israel's armed forces chief, Lieutenant-General Benny Gantz, said that if Hamas broke the truce, Israel would use "whatever force necessary to ensure the security of Israeli citizens".
A senior Israeli military officer, briefing foreign reporters, said it could take "months" for Hamas and other Palestinian groups to rebuild their domestic rocket production capacity.
"They started with around 9,000 rockets (in their total arsenal) and now they have a bit less than 3,000," the officer said. "The majority are short-range, less than 40 km (25 miles)."
Finance Minister Yair Lapid said Israel's 2014 budget could absorb the cost of the conflict without raising taxes. But the Fitch ratings agency said budget planning next year might reflect the need to reverse recent falls in defence spending.
A Palestinian sits amid the ruins of destroyed homes in the Shejaia neighbourhood, which witnesses said was heavily hit by Israeli shelling and air strikes during an Israeli offensive, in Gaza City. (AP photo)
Israel withdrew ground forces from Gaza on Tuesday, shortly before the 72-hour truce started at 8 a.m. (0500 GMT).
It showed signs of expecting the truce to last by lifting official emergency restrictions on civilians living near Gaza in Israel's south, permitting more public activities and urging residents to resume their routines.
In Gaza, where half a million people have been displaced by a month of bloodshed, some residents left U.N. shelters to return to neighbourhoods devastated by Israeli shelling.
President Barack Obama, backing efforts to broker a durable ceasefire, called for a longer-term solution that provides Israel with security while offering Gaza residents hope they will not be permanently cut off from the world.
While condemning Hamas for launching rockets against Israel from population centres, Obama urged an eventual formula to ease the hardships of ordinary Palestinians.
Efforts to achieve a lasting truce could prove difficult, with the sides far apart on their central demands, and each rejecting the other's legitimacy. Hamas rejects Israel's existence and vows to destroy it, while Israel denounces Hamas as a terrorist group and refuses any contact.