An Israeli airstrike killed three Palestinians firing mortars at southern Israel on Tuesday, while Israel's leaders debated whether to pursue a truce with Gaza's Hamas rulers or launch a broad military offensive against militants in the coastal strip.

In a related development, the father of an Israeli soldier held captive in Gaza by Hamas said his son pleaded for his life and appealed to the government not to abandon him in a newly received letter.

The Israeli attack came after militants bombarded southern Israel with 20 mortar rounds in the space of an hour, and Hamas said the strike killed three members of one of its mortar squads.

At the time, Israel's top three officials - Prime Minister Ehud Olmert, Defense Minister Ehud Barak and Foreign Minister Tzipi Livni - were discussing what to do about Gaza.

With four Israeli civilians killed by rocket and mortar attacks this year, Israel's leadership is under growing pressure to do something about the near daily assaults. Barak and other officials have repeatedly said an Israel offensive is only a matter of time.

Officials refused to comment on Tuesday's meeting of the three leaders. But Barak later told the Israeli Cabinet that he believes "we should talk less" about plans for Gaza, according to a participant.

"When the time comes, we'll act," Barak was quoted as saying by the participant, who agreed to discuss the session only if not quoted by name because the talks were private.

Gaza militants have been bombarding southern Israel with rocket and mortar attacks for seven years, but increased their rate of fire after Israel pulled its troops and settlers out of the territory in 2005. The attacks ratcheted up after Hamas militants overran Gaza a year ago.

Israel's military has limited its reprisals to focused attacks, fearing a broad military campaign would result in heavy casualties on both sides.

One of Hamas' key bargaining chips is Gilad Schalit, the Israeli soldier it has been holding for nearly two years. Hamas hopes to trade the 21-year-old tank crewman for hundreds of Palestinian prisoners, but Israel has balked at releasing the militants, some of whom are serving time for fatal attacks on Israelis.

Hamas made good on a promise to former President Carter and allowed the captured soldier to send a letter to his parents. It was delivered to them Monday.

Schalit's father, Noam, told The Associated Press on Tuesday that his son pleaded for his life and appealed to his government not to abandon him. He declined to quote directly from the letter.

The soldier has not been seen since he was seized in a cross-border raid in June 2006, when two other soldiers were killed. An audio recording of his voice and two other letters were released previously.

Egypt has been trying to broker a truce, but the cease-fire efforts have faltered over Israel's demand that Hamas free Schalit as part of the deal and a Hamas demand that Israel lift a blockade that has confined Gazans to their tiny seaside territory and deepened their poverty.

This week Hamas marks the first anniversary of its violent takeover of the coastal strip from security forces affiliated with moderate Palestinian President Mahmoud Abbas. Hamas rejects the Jewish state's right to exist and has said publicly it wants a truce to rearm and regroup.

Adding urgency to Israel's debate about Gaza are assessments by its military intelligence that Hamas is rapidly upgrading its arsenal with Iranian assistance.

Brig. Gen. Yossi Baidatz, a senior intelligence officer, told the Cabinet on Tuesday that Hamas now has rockets with a range of 12 miles, endangering a significant swath of southern Israel, according to the meeting participant. Militants are also increasingly using powerful 120-mm mortar shells instead of smaller projectiles, Baidatz was quoted as saying.

While battling militants in Gaza, Israel has been trying to pursue peace with Abbas and his West Bank government.

Peace talks resumed at a U.S.-sponsored conference in November after seven years of conflict, but have been marred by the same problems that derailed earlier negotiations - Palestinian complaints about Israeli settlement construction in the West Bank and Israeli concerns that Palestinians are far from ready to assume responsibility for security.

On Tuesday, a politically charged tax transfer from Israel reached the Palestinian treasury a week late, Yusuf Zumor of the Palestinian Finance Ministry confirmed. It appears the delay was at least partly punitive because Palestinian Prime Minister Salam Fayyad lobbied European nations not to boost their relations with Israel.

Israel collects some tax revenues for the Palestinians and transfers the money each month, deducting money that the Palestinians owe Israel for electricity and medical costs. The revenues pay the salaries of Palestinian government workers, whose wages were delayed because the transfer was overdue.