Saying they were waging "economic warfare" against the Gaza Strip's Hamas leaders, Israeli officials told the Supreme Court on Sunday that the military intends to start cutting electricity to the Palestinian territory and continue restricting fuel.

The statements by Israel's state attorney, outlining Defense Ministry plans, came in response to a lawsuit filed by Israeli and Palestinian rights groups.

The organizations are asking the Supreme Court to make Israel end fuel restrictions that caused power blackouts in the Gaza Strip this month. The activists argue that the restrictions constitute collective punishment of Gaza's 1.5 million people and violate international law.

Israel's restrictions on shipments into Gaza have become a central issue in the territory's relations with Israel and neighboring Egypt. Israel halted deliveries of food, fuel and other supplies into the strip for 4½ days this month, saying it was acting in response to rocket attacks from Gaza on southern Israel.

Guerrillas in Gaza blew up parts of the border wall between Gaza and Egypt on Wednesday. U.N. officials said roughly half of Gaza's residents have crossed into Egypt since then, many to shop for goods now scarce under the Israeli restrictions.

The Israeli Defense Ministry has determined that a "continuation of a reduction of the supply of fuel and a reduction in the supply of electricity can assist Israel in the fight it is waging against the terror organization that controls the Gaza Strip," the state attorney's office said in the filing with the Supreme Court.

"The minister of defense has wide discretion in regard to fighting, including waging economic warfare," the state attorney's officials said.

In the filing, Israel committed to allowing the European Union to resume supplying Gaza with weekly shipments of 2.2 million liters of industrial fuel. The fuel is used by Gaza's sole power plant, which shut down last week after its supply ran out. Palestinian electricity authorities said the plant's shutdown cut power to about 500,000 people in central Gaza.

The United Nations said the fuel cuts deprived about 40 percent of Gaza's people of running water and compelled Gaza to dump untreated sewage into the Mediterranean. Hospitals relied on generators.

Israel allowed fuel for the plant to enter Gaza last week. The plant received enough fuel to resume production at about half capacity, Palestinian authorities said.

Gaza receives as much as 70 percent of its electricity from Israeli power lines, Israeli and Palestinian officials say. In the court filing, the state attorney's office said Israel intends to reduce supply by 5 percent to three lines starting Feb. 7.

Even before this month's restrictions, electricity supply in Gaza ran about 30 percent below demand, officials overseeing Gaza's power plant said last week.

Israel's limits on fuel for the power plant and the planned cuts in power will reduce electricity to Gaza by about another 20 percent, according to Sari Bashi, director of the Israeli human rights group Gisha, one of the organizations that brought the court case.

Israel has a "legitimate desire" to stop rocket attacks from Gaza, but has yet to show how it can achieve that by "crippling hospitals and water wells," Bashi said.

"Irregardless of the effect of the cuts, the cuts are illegal . . . because they are designed to punish civilians for the acts of militants," Bashi said.

The state attorney said Israel intended to meet at least "the minimum humanitarian criteria" in allowing in fuel for the power plant and automobiles, and diesel fuel.

"This is not against international law; it is not collective punishment," said Arye Mekel, spokesman for the Foreign Ministry.

The Supreme Court set no date for its ruling.

Israeli officials said after imposing the blockade that they would not allow shortages in Gaza to grow into a humanitarian crisis.

Israeli Prime Minister Ehud Olmert made the same pledge to Palestinian Authority President Mahmoud Abbas in a meeting in Jerusalem on Sunday, said David Baker, an Olmert spokesman.

"Both leaders agreed to allow for continuation of humanitarian aid to the Gaza Strip," Baker said.

Hamas, an armed Islamic movement that does not recognize Israel's right to exist, took control of the Gaza Strip in June, routing Abbas's Fatah movement in days of fighting. Fatah was left to govern only the West Bank. Israel and Egypt have since all but sealed off the crossings that allow Gazans to travel and trade.

Palestinians overwhelmed Egyptian border guards late last week when the Egyptians used cattle prods and police dogs to try to corral them back into Gaza. After the crowds injured about 40 Egyptian officers, security forces pulled back Friday, allowing Gazans to flow in and out at will, Egypt said.

On Sunday, Egyptian officials tried again to regain control of the border and moved to choke off the flow of goods to Egyptian towns near Gaza -- hoping that with nothing left to buy, Gazans would return home. Egyptian authorities manned blockades near the Suez Canal on Saturday and Sunday.

"It seems they will put all of north Sinai under siege to get rid of the Palestinians," trucker Ali Abu Mahdi, 42, said late Saturday night. He was stranded at an Egyptian checkpoint with a truck full of flour and motorcycles he had hoped to sell to Gazans.