"No concessions will be made," Ismail Haniya said on Friday in his first public appearance since the abduction of Israeli Corporal Gilad Shalit.
Addressing Muslims praying in Gaza's main mosque, Haniya said that the Israeli offensive was premeditated to bring down the Hamas-led government, but said his government "would not fall and would not change its position".
"Our people are patient. They can arrest leaders, assassinate leaders, but our flag will not fall," Haniya said.
He said Israel's Gaza offensive was not only about rescuing the soldier, but was part of a plan to bring down the Hamas-led government.
He accused Israel of planning an "open war" after "failing to blackmail" his government into making concessions connected to the soldier's release.
The prime minister said his government would not trade the abducted Israeli soldier for the cabinet ministers and 56 other Hamas officials Israel arrested on Thursday.
"When they kidnapped the ministers they meant to hijack the government's position, but we say no positions will be hijacked.
"Our people are patient. They can arrest leaders, assassinate leaders, but our flag will not fall"
Palestinian prime minister
"This total aggression seeks to cow the Palestinian people and this unholy alliance wants the death of the government," he said.
He also said "there would be no referendum on a statehood initiative", referring to an initiative by Mahmoud Abbas, the president, to hold a referendum to determine if Palestinians would recognise the state of Israel.
Hamas does not recognise the Jewish state.
Haniya said his government was working to free the soldier, but accused Tel Aviv of jeopardising its efforts by attacking Gaza.
"We are continuing our efforts and communications with the Egyptians, with the president and other parties to end this matter, but the Israeli escalation is putting up obstacles.
"The aggression must stop in order not to make the situation more complicated."
But Haniya's call appears to have fallen on deaf ears as an Israeli air raid targeted a car in Gaza City's al-Shujayah district on Friday, wounding three people.
The Israeli army confirmed it had carried out an air raid in the area but did not elaborate.
Sources told Aljazeera's correspondent in Gaza that Islamic Jihad fighters were targeted.
In another incident, a Palestinian child was injured by shrapnel from an Israeli tank shell in Bait Hanun in northeastern Gaza, the correspondent reported.
Earlier Israeli warplanes pounded Gaza, setting ablaze the interior ministry offices, on the third day of an offensive aimed at bringing home Shalit who was seized in a cross-border Palestinian raid last Sunday.