Israel indicated for the first time on Sunday that an end was in sight to its war on Hamas, amid some of the heaviest clashes of an offensive that has killed nearly 900 people in the Gaza Strip.
Israeli troops pushed deeper into Gaza's main city, sparking some of the fiercest battles yet of the 16-day-old war that Israel launched in response to rocket fire, but that has failed to completely stop the rockets.
Civilians again fell victim in Israel's offensive in the Palestinian enclave, one of the world's most densely populated places where every other person of the 1.5 million population is under 18 years of age.
Two women and four children were killed in a strike on a house in Beit Lahiya, medics and witnesses said. Twelve bodies were pulled from the rubble in Tal al-Hawa including 10 fighters, according to medics.
Israeli officials suggested the Jewish state was nearing the end of its offensive, which has killed hundreds of civilians, despite having last week waved off a UN resolution calling for an immediate halt to the fighting.
"The decision of the (UN) security council doesn't give us much leeway," Deputy Defence Minister Matan Vilnai told public radio.
"Thus it would seem that we are close to ending the ground operation and ending the operation altogether."
Earlier Prime Minister Ehud Olmert said the Jewish state was nearing the goals it had set for its operation, but said fighting would continue for now.
"Israel is approaching these goals, but more patience and determination are required," Olmert said at the start of the cabinet meeting.
The premier told ministers that Israel "dealt Hamas an unprecedented blow," government secretary Oved Yehezkel quoted Olmert as saying. "It will never be the same Hamas."
Hamas, however, has vowed to keep fighting and on Sunday some 17 rockets were fired into Israel from Gaza by mid-afternoon, without wounding anyone.
Both Israel and Hamas last week brushed off the UN Security Council resolution that called on both sides to stop fighting, and the early Sunday hours saw Israeli troops push deep into the territory's main population centre.
Troops crept into the southern Tal al-Hawa neighbourhood of Gaza City, encountering roadside bombs, mortar and gunfire from Palestinian fighters, witnesses said.
The troops withdrew at daybreak, but hundreds of panicked residents fled the area, clutching small children and hastily packed bags after a sleepless night.
"We couldn't take anything with us, not even milk for the children," said Ibtisam Shamallah, 22, as she fled with her two children.
Defence Minister Ehud Barak told reporters that Israel was "examining the diplomatic channel" while continuing its offensive.
"There's no contradiction between the two," said Barak, who is due to again send senior aide Amos Gilad to Cairo in the coming days for Egyptian-led talks on ending the war.
Israeli warplanes bombed more than 60 targets throughout Gaza overnight and into morning, hitting arms depots and smuggling tunnels as well as a mosque that was allegedly used to store weapons and train fighters, the army said.
In all, at least 26 Palestinians have been killed in clashes on Sunday, medics said.
With the body count spiralling, the exiled political chief of Hamas, Khaled Meshaal, remained defiant, vowing in an address televised late Saturday that the Islamists would not strike a deal on a permanent truce with Israel, a country the group is pledged to destroying.
"We will not accept a permanent truce because ... as long as there is an occupation there is a resistance," he said, adding that his group will not hold talks on a temporary truce until Israel stops its offensive.
Since the Israeli offensive began on December 27, at least 885 people have been killed, including 275 children, and another 3,620 wounded, according to Gaza medics.
Ten Israeli soldiers and three civilians have been killed in combat or in rocket attacks since the operation began, as Palestinian militants have fired more than 600 rockets, some of them penetrating deeper than ever inside Israel.
Egypt has been spearheading Western-backed efforts to end the fighting, calling for an immediate truce, opening Gaza's border crossings, preventing arms smuggling and relaunching Palestinian reconciliation efforts.
A senior Israeli official told AFP that "Olmert believes Israel can reach an understanding with Egypt but at the moment, there is no intention to let up the pressure on Hamas."
In Washington, US president-elect Barack Obama pledged to immediately engage in Middle East peace efforts as soon as he takes office in nine days.
The conflict has sparked worldwide pro-Palestinian demonstrations, with major cities set to hold fresh protests on Sunday.