Hamas and Israel hold fire

GAZA (Reuters) - Palestinians took stock on Monday of the devastation from a three-week war in the Gaza Strip as a cease-fire took hold and Israeli forces pressed on with their gradual withdrawal from the Hamas-ruled territory.

A spokesman for Hamas's armed wing, his face masked by a chequered Arab scarf, vowed it would replenish its arsenal of rockets and other weapons, in defiance of any Israeli or international efforts to cut off smuggling routes.

Bulldozers cleared rubble from streets and the Palestinian Central Bureau of Statistics said the total repair bill would be at least $1.9 billion (1.3 billion pounds).

A source in the Hamas administration in the Gaza Strip said 5,000 homes, 16 government buildings and 20 mosques were destroyed and 20,000 houses damaged. Israel has said militants used mosques as weapons depots.

Saudi Arabia's King Abdullah announced the kingdom would donate $1 billion for reconstruction in the Gaza Strip. Israel reopened three border crossings to enable more basic goods to be transferred to the territory of 1.5 million Palestinians.

Military officials said troops and tanks that had poured into the enclave on January 3 as part of an offensive to counter Palestinian rocket attacks were gradually leaving, though they remained ready to tackle any flare-ups in fighting.

Israel and Hamas separately declared ceasefires on Sunday, the Islamist group demanding an Israeli pullout within a week.

Palestinians emerged from hiding, shocked at the killing of more than 1,300 fellow residents of Gaza and at the widespread destruction of homes and government infrastructure.

"We want a solution that would guarantee Israeli tanks do not return to kill us," said Yehya Aziz, a 22-year-old Gaza resident.

Gaza medical officials said the Palestinian death toll included at least 700 civilians. Israel, which accused Hamas of endangering non-combatants by operating in densely populated areas, said hundreds of gunmen were among the dead. Hamas's armed wing challenged the figure, saying it lost 48 fighters.

Ten Israeli soldiers were killed as well as three Israeli civilians hit by rockets, Israel says.

Western powers had pushed for a cease-fire. While publicly sympathetic to Israel's security concerns, they had voiced alarm at mounting civilian casualties and hardship in the Gaza Strip.

The crisis clouded the last days of the Bush administration. It spelled Middle East challenges that U.S. President-elect Barack Obama, who is to be sworn in on Tuesday, may find no less insurmountable than those faced by his predecessors.

"VICTORY"

Ismail Haniyeh, the head of the Gaza-based Hamas administration claimed a "popular victory" against Israel. In a speech, he called Hamas's cease-fire decision "wise and responsible."

Abu Ubaida, a spokesman for Hamas's Izz el-Deen al-Qassam Brigades, said "all options would be open" if Israel did not meet the group's pullout deadline.

Israel launched its air, ground and sea assault on December 27 vowing to "change the reality" for southern border towns that, since 2001, had taken fire from Hamas and other Palestinian factions armed with mostly improvised short-range rockets.

Israeli Prime Minister Ehud Olmert has declared the mission accomplished -- noting a flurry of diplomatic efforts by the United States, Egypt and European countries to prevent Hamas rearming.

That would mean as yet unspecified measures to stop Hamas smuggling weapons across the Egypt-Gaza frontier, a sensitive matter given Cairo's past efforts to play down its scope.

"Do whatever you want, bringing in and manufacturing the holy weapons is our mission, and we know how to acquire weapons," Abu Ubaida told a news conference.

Israeli Internal Security Minister Avi Dichter threatened a military response to any renewed flow of arms into the Gaza Strip, saying Israel would view such smuggling as an attack on its territory.

"That means, if smuggling is renewed, Israel will view it as if it were fired upon," Dichter told Israel Radio.

A diplomat, who asked not to be identified, said Egypt was continuing talks with Hamas leaders and Israel on a long-term cease-fire that would guarantee the reopening of Gaza border crossings, including a terminal at the Egyptian frontier that had served as Gaza's main exit to the outside world.

The diplomat, who is familiar with the negotiations, said he expected the talks to achieve "some results, hopefully by the end of this week."

Mark Regev, a spokesman for Olmert, said "enormous amounts" of aid could be allowed in if the quiet holds.

For now, Gaza's situation looks much as it did before the conflict -- armed standoff and a dim future for the 1.5 million people fenced inside the strip by a blockade aimed at punishing Islamist Hamas for rocket fire and ambitions to destroy Israel.

(Additional reporting by Yannis Behrakis on the Gaza-Israel border, Adam Entous, Luke Baker, Alastair Macdonald, Alistair Lyon, and Ori Lewis in Jerusalem and Alaa Shahine in Cairo; Writing by Dan Williams and Jeffrey Heller; Editing by Myra MacDonald)