Israel has, however, rejected the call.
"To get out of this crisis, everyone must return to a situation of calm on the basis of a halt to all military operations by both sides," a statement issued by the Palestine prime minister's office said.
"It is necessary that Israel halt its military operation in the Gaza Strip and withdraw its forces," the statement further said.
Later, AFP reported from Jerusalem that Israel had rejected the Palestinian prime minister's call for a ceasefire, demanding the unconditional release of an abducted Israeli soldier.
"We do not hold negotiations with terrorists. They must first return the kidnapped soldier unharmed and cease their fire,"
an official in Israeli prime minister office told AFP.
"We will decide on our next moves according to the steps taken by the Palestinian government," he said.
Israel pulls back
Two weeks ago Israel launched a massive incursion into the Gaza Strip after Palestinian militants from three groups, including Hamas's armed wing, abducted an Israeli soldier in a deadly raid on a border outpost.
"We do not hold negotiations with terrorists. They must first return the kidnapped soldier unharmed and cease their fire"
A spkesman at the Israeli prime minister's office
On Saturday, Haniya called for a two-way ceasefire in the operation, which has claimed the lives of 36 Palestinians and one Israeli soldier.
Earlier Israeli and Palestinian sources said that the Israeli forces had pulled back from northern Gaza, three days after it invaded the area.
"Our forces have left the Beit Lahiya area and continue to operate west of the Karni terminal, as well as east of Beit Hanun and in the industrial zone near the Erez terminal," an army spokesman in Tel Aviv said.
Israeli forces could be seen withdrawing to a security zone, a thin strip of no-man's land on the northern border of Gaza, established after Israel pulled out of the territory in a massive disengagement operation 10 months ago, Palestinian witnesses and security sources said.
Earlier, Israeli troops backed by helicopters clashed with Palestinian fighters inside Gaza near the strip's key commercial crossing.
Witnesses and medics said several Palestinians were wounded in the clash that took place on the edge of a Hamas stronghold near the Karni crossing.
An Israeli aircraft fired at least one missile at the Palestinian fighters, witnesses said.
Seven Palestinians were killed on Friday in the continuing Israeli offensive in the Gaza Strip while another was shot dead in the West Bank.
Israeli fighter aircraft were used
in the two-week-long attacks
Two of these were killed by an Israeli air strike that, an army spokesman said, was directed against "two armed cells" in the Al-Atatra area of Beit Lahiya which has been the scene of the deadliest fighting and attacks over the last two days.
"We identified hitting both of them," the spokesman said. The victims' names were not immediately released.
In another incident, nineteen-year-old Motaz al-Firi was killed by Israeli tank fire in Atatra and 20-year-old Shadi Omar, who medics said was deaf, was shot in the chest and killed.
Earlier during the day, a Palestinian was killed in another Israeli air raid in the same area.
An 11-year-old boy died of wounds sustained in an Israeli shooting a day earlier near Beit Hanun in northern Gaza, medics said.
In the occupied West Bank, another Palestinian was shot dead in clashes with Israeli forces in Nablus.
Israel hinted at conditional
release of Palestinians prisoners
Meanwhile a top Israeli government official has suggested that Israel might release Palestinian prisoners as part of an Egyptian proposal to win freedom for an Israeli soldier held by militants in Gaza.
Avi Dichter, Israel's minister of public security, said that once the Israeli soldier was released and militants stopped rocket attacks from Gaza, "then, in a goodwill gesture, Israel, as it has in the past, knows how to free prisoners."
Dichter's comments were relayed by Ofer Lefler, his spokesman.
In a statement, Hamas said it was not asking Israel "for the impossible" over the 19-year-old captured tank gunner. Hamas, whose armed wing took part in Gilad Shalit's abduction, has demanded Israel free 1,000 prisoners in exchange for his release.
"His treatment is being done well and in a humanitarian way in accordance with the orders of our religion," the group said.
"We stress that negotiations are the only way out."