By Nidal al-Mughrabi
GAZA (Reuters) - Israeli troops fought fierce gun battles with Hamas fighters Monday, keeping military pressure on the Islamist group while avoiding urban warfare that would complicate ongoing diplomatic efforts to end the Gaza war.
An Israeli military spokesman said army reservists had been thrown into the offensive that Israel launched 17 days ago with the declared aim of ending Hamas cross-border rocket attacks.
But Israeli forces were still holding back from a threatened third stage of their deadliest assault on Palestinian militants in decades -- a push into the city of Gaza and other urban areas to add more punch to an air campaign and ground offensive.
Israeli Foreign Minister Tzipi Livni, a candidate for prime minister in a February 10 election, said the surprise bombing of the Gaza Strip at the start of operations on December 27 and an armoured thrust a week later had "restored Israel's deterrence."
She gave no indication in an interview with Army Radio when Israeli assaults, which Gaza medical officials said have killed nearly 900 Palestinians, including many civilians, might end.
Political sources said Livni, chairman of the ruling Kadima party, and Defence Minister Ehud Barak, head of centre-left Labour, wanted to halt the operation in the Hamas-ruled territory as soon as possible.
But the sources said outgoing Prime Minister Ehud Olmert, who resigned as Kadima chief in September, disagreed and planned to present the issue in a cabinet forum where he has support.
In violence Monday, Israeli forces killed a Palestinian gunman and four civilians, medical workers said.
Israeli soldiers battled Hamas militants east and north of the city of Gaza in what residents called ferocious fighting.
The Israeli military said its aircraft carried out more than 10 attacks overnight, fewer than on many previous days. They struck Hamas gunmen, weapons caches, a rocket launching position and a smuggling tunnel under Gaza's border with Egypt, it said.
Two rockets and two mortar bombs fired from the Gaza Strip hit Israel, causing no casualties, the military said, announcing that a daily three-hour suspension of operations would begin on Monday at 10 a.m. (5 a.m. EST) to allow Gazans to shop for food.
TRUCE NEGOTIATIONS
The Palestinian death toll since Israel's "Operation Cast Lead" began stands at 895, many of them civilians, Gaza medical officials said. About 3,600 Palestinians have been wounded.
Thirteen Israelis -- three civilians hit by rocket fire and 10 soldiers -- have been killed, Israel says.
Egypt's state news agency MENA said more talks in Cairo with a Hamas delegation on an Egyptian plan for a cease-fire were planned for Monday.
MENA quoted an "official source" as saying that discussions Sunday between Egyptian intelligence chief Omar Suleiman and Hamas officials on ending the bloodshed had been positive.
Israel, which rejected a U.N. cease-fire resolution last week as unworkable, wants a halt to rocket attacks and measures to stop Hamas from rearming via tunnels running under the Egyptian frontier, an area Israel calls the Philadelphi corridor.
Hamas leader Khaled Meshaal has said his Islamist group would not consider a cease-fire until Israel ended its air, sea and ground assault and lifted its blockade of the Gaza Strip.
Western and Israeli officials said diplomats were discussing an internationally-assisted technical monitoring system to help Egypt stop weapons smuggling and intercept rocket shipments.
Egypt, concerned for its sovereignty, opposes stationing an international force on its side of the frontier.
Israeli warplanes have repeatedly bombed the Philadelphi corridor along Gaza's 15-km (nine-mile) border with Egypt, sometimes using "bunker buster" munitions that explode underground and cause shockwaves to try to collapse the tunnels.
Two tunnel-builders in the southern Gaza town of Rafah estimated the air strikes had destroyed hundreds of tunnels.
Top Israeli military intelligence officials recently told Western diplomats that Israel's "third phase" options included taking over the corridor and the adjacent town of Rafah and holding onto them, one participant in the meetings told Reuters.
Israel believes at least some of Hamas's rockets arrived in Egypt by ship and were then transported overland across the Sinai peninsula before being sent into Gaza through tunnels.
(Additional reporting by Adam Entous in Jerusalem, Writing by Jeffrey Heller, Editing by Alastair Macdonald and Samia Nakhoul)
