JERUSALEM - Israel and Hamas held their fire around the Gaza Strip on Monday as Egypt worked to broker a comprehensive deal to end violence and lift the blockade of the impoverished Palestinian territory.
Palestinians said the two sides have made headway towards a truce, but Israel, while stressing the army would not hit Gaza if militants stopped firing rockets, insisted it was not negotiating a ceasefire.
For a third day in a row, the Israeli army did not strike the Hamas-run territory and said Gaza fighters had all but halted their barrages, launching just one rocket and one mortar round since Sunday.
More than 130 Palestinians were killed in a wave of Israeli air strikes launched in late February to stop the rocket fire, raising concerns about the future of already faltering peace talks.
But efforts to bring about a ceasefire have gathered pace, with senior US and Israeli envoys holding talks in Egypt over the past week, as have delegations from the Islamist movement Hamas and Islamic Jihad.
"With the developments in Egypt, I think there is an agreement in principle on that and a deal might be reached in the coming few days," Palestinian president Mahmud Abbas said in reference to the proposed truce.
But Prime Minister Ehud Olmert denied Israel was engaged in talks on a ceasefire.
"There is no deal, there are no negotiations, either direct or indirect," Olmert said at a press conference.
"If the terror stops, if the Qassams stop landing on residents of Sderot and if Grads stop landing on Ashkelon... Israel will have no reason to fight the terror organisations there... We will have no reason to retaliate."
Olmert was referring to cities in southern Israel that have borne the brunt of rocket fire from Gaza militants.
"Israel has not asked Egypt to mediate with Hamas on a ceasefire. Egypt is not playing any role in negotiations with Hamas," he said.
Olmert`s comments contradicted statements from Egypt and Palestinian officials that Cairo, supported by the United States, has been working on a deal.
"For the moment, we are at a preliminary stage over this; we are listening to all the parties so as to be able then to draw up a detailed and comprehensive initiative," said Mohammed Bassiuni, chairman of the Egyptian parliament`s national security committee.
Bassiuni, a former ambassador to Israel, told AFP the initiative would likely call for a "period of calm," an end of the Israeli blockade of Gaza and an exchange of prisoners between Israel and Hamas.
Hamas also said it was working with the Egyptians -- who have often played the role of Middle East mediator -- to reach a ceasefire deal.
"(Hamas) will help the Egyptian leadership to reach a reciprocal and simultaneous truce that will at the same time lead to the lifting of the blockade imposed on the Palestinian people," said Ismail Haniya, who was prime minister in the Hamas-led unity government which Abbas fired after the Islamists violently seized Gaza in June.
Israel`s Haaretz newspaper, citing an unnamed official, said the two sides agreed to hold fire "via a series of messages, both open and secret" passed during US Secretary of State Condoleezza Rice`s Middle East trip last week.
Rice has said she spoke to the Egyptians and was waiting for them to try to bring calm to the region and improve the situation in Gaza.
Violence sharply escalated around Gaza on February 27 after Israel killed five Hamas militants in an air raid and Gaza militants retaliated with a barrage of rocket and mortar fire.
In all, 133 Palestinians and five Israelis have been killed since.
Israel, the United States and the European Union view Hamas as a terrorist organisation and have long sought to isolate the group.
But after Abbas said he was suspending peace talks in protest at the Gaza strikes, Washington encouraged Cairo to launch its mediation efforts.
"Israel today is in favour of a ceasefire with Hamas under certain conditions," a senior Israeli official told AFP.
Bassiuni said that during talks in Egypt, Israeli envoy Amos Gilad indicated that Israel was "ready for a lull provided Hamas did not try to profit from it to improve its military capacity by smuggling weapons over the border between Egypt and the Gaza Strip."
Meanwhile, US President George W. Bush said he was sending Vice President Dick Cheney to the Middle East to "reassure" all parties that the United States wants peace and to push both sides to abide by their roadmap obligations.
bur-pfm/txw/hc
03/10/2008 16:17 GMT