Israeli Troops and Hamas Fighters Clash in Gaza City

Israeli soldiers and Hamas militants fought gun battles in the streets of Gaza City for the first time this morning,with Israeli troops going house to house searching for Hamas fighters.

The fighting came as Israeli tanks and troops seized control of large parts of the Gaza Strip, dividing the territory and forcing tens of thousands of people to flee their homes as the death toll mounted under relentless artillery and gunfire.

Some of the heaviest fighting was reported to be east of Gaza City, in the Zeitoun district, where three Palestinian children were killed by an Israeli tank shell. Several others were wounded, according to Palestinian medical officials.

Hamas said it would send a delegation to Egypt today for talks - the first by the group since the conflict began 10 days ago. Ayman Taha, a Hamas spokesman, said the group had been invited by Egypt for talks over a truce. Israel has so far rejected a ceasefire. The French president, Nicolas Sarkozy, is also due in Egypt as part of a Middle East trip that will take him to Jerusalem for talks with the Israeli prime minister, Ehud Olmert.

Israeli forces have now surrounded Gaza City, with fighting to the north in Jabaliya, where troops told residents to leave their homes, and to the south in the are of the former Jewish settlement of Netzarim. The territory, home to 1.5 million Palestinians - more than half of whom are children - has effectively been divided with Israeli troops reaching as far as the Mediterranean coast in at least two places: near the Karni crossing, south of Gaza City, and between Khan Yunis and Rafah, further south.

Israeli reports said there had been only limited direct confrontation between soldiers and Hamas fighters, with most of the fighting by shelling and mortars until now.

Palestinians flooded in to the heart of Gaza City in the hope of finding shelter but they faced a mounting humanitarian crisis. The UN said all hospitals in the city, straining to deal with hundreds of wounded Palestinians over the past few days, had been without mains electricity for 48 hours and were depending on back-up generators, which were close to failing.

With the death toll of Palestinians now at 512, there were growing international calls for a ceasefire, including from Gordon Brown. But Hamas fired more than 30 rockets out of Gaza yesterday and Israel remained to determined to press ahead with its military campaign.

One Israeli soldier was killed near Jabalya in the first hours of the invasion. A further 48 have been injured. A total of five Israelis - three civilians and two soldiers - have been killed since last Saturday when the Israeli campaign began.

Olmert, the Israeli prime minister, said the ground invasion, which began on Saturday night and was the most serious fighting in Gaza for decades, was "unavoidable". Shimon Peres, the Israeli president, said Israel would not accept a ceasefire. "Hamas needs a real and serious lesson. They are now getting it," he told a US television network. "We shall not accept the idea that Hamas will continue to fire and we shall declare a ceasefire. It does not make any sense."

A report in the Israeli newspaper Ha'aretz said Israel was now looking for a diplomatic agreement to halt the conflict but one that did not involve Hamas. It said Israel wanted Egypt, the Palestinian Authority based in the occupied West Bank, and the international community to oversee an agreement. The main points would be to stop Hamas firing rockets, prevent smuggling and hand over control of crossings into Gaza to the Palestinian Authority, run by Hamas' bitter rival, Fatah.

Israel feared any ceasefire deal with Hamas would legitimize the Islamist group. "The international community will initiate the agreements and will impose it on Hamas," the paper quoted a senior Israeli political source as saying.

An EU delegation was also due in Jerusalem for talks with Israeli Foreign Minister Tzipi Livni today.

As Israeli forces pushed into the towns of Beit Hanoun, Beit Lahiya and Jabalya in northern Gaza, the civilian toll among Palestinians rose rapidly. Five died on Sunday when an Israeli artillery shell landed in Palestinian Square, a shopping center in central Gaza City; five more were killed outside a mosque in northern Gaza. The dead also included a Palestinian paramedic working for an Oxfam-funded organization after an ambulance was hit by an Israeli shell in Beit Lahiya. The paramedic was working for the Union of Health Work Committees. Another paramedic lost his foot and the ambulance driver was injured in the same incident. The paramedics were trying to help evacuate an injured person in the Beit Lahiya area, when the shell struck the ambulance, Oxfam said.

John Prideaux-Brune, Oxfam's country director for Israel and Palestine, speaking from Jerusalem, said: "The incident shows yet again that trying to fight a military campaign in the densely populated streets and alleys of the Gaza Strip will inevitably lead to civilian casualties."

The charity said the ground offensive is preventing urgently needed supplies of medicine, food, water, and fuel from reaching 1.5 million Palestinians. Prideaux-Brune said: "Hospitals in Gaza are overflowing with dead and wounded while facing severe shortages of essential medical supplies and spare parts."

With more than 2,300 Palestinians injured, Hamas warned Israel of more battles to come. "You entered like rats. Your entry to Gaza won't be easy. Gaza will be a graveyard for you, God willing," Ismail Radwan, a Hamas spokesman said on the group's television station.

Israel's long-term intentions are still unclear: these incursions may end within days, or they may be the prelude to a longer military reoccupation.

Further evidence of the humanitarian crisis was provided by Gisha, an Israeli human rights group, which said 75% of the territory's electricity had been cut off. Gaza's sole power plant has been closed since last Monday because no industrial diesel has been allowed in and lines delivering electricity directly from Israel and Egypt had been damaged in the fighting.

Gisha said 48 of Gaza's 130 water wells were not working because of the electricity shortages, leaving more than 500,000 people cut off from their water supply.

UN secretary-general Ban Ki-moon said he was "extremely concerned about the deteriorating humanitarian situation" in Gaza.