Both Israeli defence officials and Hamas leaders have insisted that no formal truce has been agreed so far, but officials in Olmert's office told the Associated Press that he had ordered the army to scale back its operations to allow talks to proceed.

"What we are seeing is a period of shuttling backwards and forwards to Egypt by Hamas representatives, and on Sunday we know that in Egypt there was an Israeli official," Rowland reported.

"But the Egyptians are being very careful that they are not even in the country at the same time."

'Period of calm'

Hossam Zaki, spokesman for the Egyptian foreign ministry, confirmed that Cairo had been in contact with representatives from both sides and there had been some progress.

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"There is an interest on both parties in a period of calm and the issue now is to discuss whether there will be guarantees ... that the military confrontations and operation will not occur again," he told Al Jazeera.

Hamas sources told Al Jazeera that the Palestinians are not only calling for an end to the military action, but also the reopening of the Rafah crossing and the lifting of the siege on Gaza.

Zaki told Al Jazeera that the border issue was one of the top priorities for the Egyptians after thousands of Gazans poured into Sinai when Israel stopped deliveries of essential items to the strip.

"They have their vision of how the crossing should work, they are entitled to put their vision, after all they are controlling the Gaza Strip," he said.

"But the issue of reopening the crossings is dealt with in a different concept."

Negotiations suspended

Mahmoud Abbas, the Palestinian president, briefly called off negotiations with Israel in response to an Israeli military operation in Gaza in which more than 125 Palestinians, many of them civilians, were killed, according to Palestinian medical officials.

Israel said it launched the raids in response to Palestinian rocket attacks on the south of the country.

Hamas officials have said in recent days that the armed wing of the group would stop firing homemade missiles if Israel halted its military operations.

That mirrored a remark by Olmert on Wednesday that Israel would have no reason to attack Gaza if the rocket launchings ceased.

He also said on Monday that Israel was prepared to take a "significant, important and dramatic step" to advance peace.

Although conditions in Gaza were relatively peaceful, Israel carried out several raids into the West Bank arresting at least 29 Palestinians on Monday.

The army sealed off the West Bank on Friday night after eight Jewish students were shot dead in an attack on a religious seminary.

Jewsish settlements

On Monday, the Merkaz Harav Yeshiva in west Jerusalem said it would not welcome a visit from Olmert because of his support for the idea of withdrawing from some Jewish settlements as part of a peace deal with the Palestinians.

Olmert approved building at
Givat Ze'ev settlement [AFP]
"We cannot receive a prime minister who advocates against the spirit of the Torah and accept that Israel withdraws from a part of the land of Israel," Rabbi Haim Steiner, one of the Yeshiva's senior officials, told public radio.

The seminary is considered the centre of Israeli religious nationalism and is a strong proponent of the settler movement.

A number of plans to expand Jewish settlements in the West Bank were approved by Olmert on Sunday.

Israel Radio reported that the ultra-Orthodox Shas party, a key coalition partner, had threatened to quit the government unless the construction at the Givat Ze'ev settlement, 8km from central Jerusalem, was approved.

Olmert had barred ministries from ordering new Israeli construction in the West Bank without his approval because of its political rammifications.

The settlements are illegal under internation law because they are built on occupied land. Their ongoing expansion contravenes agreements under the road map peace plan and Annapolis final status talks.