A senior Israel Defense Forces military intelligence officer told Tuesday's cabinet session that Hamas both fears a broad IDF operation in the Gaza Strip, and is expediting its preparations for such an incursion.

Brigadier General Yossi Baidatz, the head of the research division of Military Intelligence, added that the militant Palestinian group was currently most interested in achieving calm in the Gaza Strip, which it controls, but was simultaneously continuing to smuggle weapons from Egypt.

Baidatz was speaking at a session attended by Prime Minister Ehud Olmert, Defense Minister Ehud Barak, Foreign Minister Tzipi Livni and top military brass, which focused on the issue of whether to pursue a truce with Gaza's Hamas rulers, or embark on a broad military operation against militants in the Strip.The meeting came amid mortar shell and Qassam rocket attacks perpetrated by Gaza militants on the Western Negev.

During the meeting, held in Jerusalem, the officials were to consider Hamas' response to Israel's cease-fire proposal. Israel holds Hamas responsible for almost daily rocket and mortar attacks by Palestinian gunmen on southern Israel from Gaza.

To date, the Islamic group has agreed to a cease-fire with Israel but has refused to include in the deal the return of abducted IDF soldier Gilad Shalit.

Israeli sources said Monday it was possible that Hamas' decision to hand Israel a letter apparently written by Shalit was an expression of "goodwill," in an effort to show that the group was willing to take some steps toward a truce deal.

In recent weeks Israel has demanded that any agreement for calm in the Gaza Strip, and the lifting of its blockade on the Strip, would also include progress on the question of Shalit, who has been held in Gaza since his abduction in June 2006.

Hamas has also rejected Israel's demand it cease smuggling weapons into Gaza. Egypt has pledged to fight the arms smuggling, but Olmert and Livni have expressed their disapproval of reaching an agreement that would leave Hamas free to continue amassing a weapons stockpile.

During the cabinet meeting, Olmert also hinted his displeasure at Transportation Minister Shaul Mofaz's comments that an attack on Iran appeared 'unavoidable.'. Olmert said in the meeting that he recommends that ministers do not comment to the media about sensitive security issues.

In a second meeting to be held on Wednesday, the entire security cabinet will convene to discuss the situation in Gaza, a discussion that is deemed as crucial to Israel's deliberations over whether to reach a cease-fire or launch an operation in Gaza.

A broad campaign carries the the risk of high Israeli military and Palestinian civilian casualties. But with four Israelis killed so far this year, Israel's leadership is under domestic pressure to do something about the assaults.