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Al Jazeera's correspondent in the Gaza Strip, Ayman Mohyeldin, reported that there could be further Israeli deployments to the former settlement of Netzarim on Friday and that the military had pulled back from Tal al-Hawa.

Despite the relative lull, shelling continued and residents said they are still living in fear, uncertain where Israel would strike next.

Hatem Shurrab, a Gaza resident living near Tar al-Hawa in Gaza City, which has experienced some of the heaviest fighting, told Al Jazeera on Friday morning:

"I have my sister's family who came to our home to shelter. It's very difficult to describe how we feel. It's very scary. The next target is not known. Who will be killed next, we don't know.

"I can hear explosions going around and a couple of hundreds of metres away a home was burnt close to the explosions.

"What is really painful for me is that I see every day people who are being displaced. Mass internal displacement. Women running in the street trying to find a place."

Meanwhile, clashes erupted between Palestinian fighters and Israeli troops in the southeastern Zeitoun neighbourhood of Gaza City.

Renewed diplomacy

Diplomatic efforts appeared to intensify on Friday, a day after some of the heaviest fighting so far.

Tzipi Livni, the Israeli foreign minister, is to meet Condoleezza Rice, the US secretary of state, in Washington to discuss an American-Israeli agreement to prevent weapons smuggling. 

Palestinians carry the body of Said Siam during the funeral on Friday [Reuters]
An Israeli envoy was also sent to Cairo, the Egyptian capital, to discuss ceasefire terms offered by Hamas.

Israel's bombardment of three hospitals and a UN compound on Thursday prompted international outrage as urgently needed food and medical supplies were destroyed. The damage renewed calls for a ceasefire to be adhered to immediately.

Adnan Abu Hasna, a spokesman for the United Nations Relief and Works Agency (Unrwa), said "tens of millions of dollars worth of aid" had been destroyed in the UN complex.

Ehud Olmert, the Israeli prime minister, justified the shelling by saying armed Palestinians within the compound had fired at Israeli troops. The Unrwa denied the claim.

On Friday, the UN said it planned to resume operations in whatever capacity it could following the attack.

Economic costs

A funeral is being held for Said Siam, the interior minister in Hamas's government assassinated on Thursday along with one of his sons and a brother in an air raid in Jabaliya refugee camp.

Mohyeldin said the killing highlighted Israel's intelligence capacity as well as its military might.

"Hamas's leadership, aware that this type of attack was going to take place, points to other leaders - much more high profile and much more influential - such as Sheikh Ahmed Yasin and Abdul Aziz al-Rantissi, both killed by Israel in 2005," he said.

"That only gave the movement momentum and gave it a grassroots flourishment. Some have already speculated that Hamas will only be strengthened by this."

Aside from the human cost, the Palestinian Statistics Bureau also reported on Friday that the war has cost the Palestinian economy at least $1.4bn.

The bureau said 26,000 Gazans were unable to live in their homes and were being housed in temporary shelter. 

Much of Gaza's infrastructure lies in ruins. The statistics show that 20,000 residential buildings are damaged and 4,000 more destroyed.

Mohyeldin added: "The other question will be: How does the government try to maintain any type of law and order with its entire security infrastructure decimated? There are no police stations, no more civil defence or basic security services in Gaza, so it is something of a lawless state."

Palestinian factions within Gaza claim they are still able to fire rockets, despite Israel's stated aim that the Gaza assault would disarm them.