Israeli forces edged into the Gaza Strip's most populous area on Sunday, killing at least 27 Palestinians in an offensive stepped up in defiance of international calls for a ceasefire.
Medical officials said about half of the Palestinian dead in the latest fighting in the Hamas-ruled territory were civilians.
"Israel is getting close to achieving the goals it set for itself," Israeli Prime Minister Ehud Olmert told his cabinet in Jerusalem, giving no timeframe for an end to the 16-day-long war.
"But patience, determination and effort are still needed to realise these goals in a manner that will change the security situation in the south," Olmert said, referring to Hamas rocket attacks that continued to hit Israeli towns.
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 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. German diplomatic sources said Berlin offered to send specialists next week to Egypt to discuss ways to improve border security and Cairo had responded positively.
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.
A total of 869 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 Dec. 27.
New street fighting killed 10 gunmen, Palestinian medical workers said. Another three fighters and a member of the Hamas police force were killed by Israeli air strikes.
Medical officials said 13 civilians, including four members of a family, were killed by Israeli forces and that Israeli shelling of two villages south of the city of Gaza had set 15 houses on fire.
Israel's military said it attacked a mosque used to store weapons, 10 squads of gunmen, three rocket-launching sites and the house of a Hamas commander.
Mahmoud Abu Hasseera surveyed the rubble of his house on the edge of the city of Gaza, where Israeli tanks and infantry had battled Palestinian fighters hours earlier.
"Where should we and our children go to sleep? To the streets?" he asked. "We have no mattresses, blankets, cooking gas, food or water. Everything was destroyed."
Though Palestinian rocket salvoes into Israel have diminished, two rockets on Sunday struck Beersheba, 42 km (26 miles) from the Gaza Strip, and at least four others hit other communities, police said. There was some damage but no casualties.
Israel's deputy defence minister, Matan Vilnai, suggested time was running out for the Gaza campaign now that the U.N. Security Council had weighed in with a call to stop it.
"Therefore it seems -- I'm guessing -- that we are close to a cessation of the ground operations and a cessation of the overall operations," Vilnai said on Army Radio.
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, a politically risky move a month before Israel's national election.
Israel, the prime minister said, "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.
Israeli actions have drawn denunciations from the Red Cross, U.N. agencies and Arab and European governments.
New York-based Human Rights Watch has called on Israel to stop using white-phosphorus munitions in densely populated areas in the Gaza Strip, saying the chemical could severely burn people and set structures and fields on fire.
The group said white phosphorus was apparently being used to create smoke screens, describing this as "a permissible use in principle under international law".
But it also noted media photographs of air-bursting white phosphorus projectiles, which it said can spread burning wafers over an area between 125 and 250 metres (410-820 ft) in diameter, depending on the altitude of the explosion.
Israel said it uses only weapons permitted by international law. It has accused Hamas of using civilians as human shields.
(Additional reporting by Adam Entous, Ari Rabinovitch and Allyn Fisher-Ilan in Jerusalem; writing by Dan Williams and Jeffrey Heller; Editing by Michael Roddy)