Israeli aircraft attacked Hamas targets in Gaza today, the third day of an offensive that has killed more than 300 Palestinians, many of them civilians.

The United Nations Relief and Works Agency said at least 57 of the dead were civilians. It based the figure, which an UNRWA spokesman called "conservative", on visits by agency officials to hospitals and medical centres.

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Hamas defied the strongest assault against Palestinian militants in decades by launching a rocket attack on Israel that killed one person, the second such fatality since Saturday.

Most Gazans in the densely populated enclave stayed at home, in rooms away from windows that could shatter in blasts from air strikes on Hamas facilities. Residents of southern Israel ran for shelter at the sound of alarms heralding incoming rockets.

"At no time could we leave the kids unattended. They trembled every time there was a bombing, day and night, and all of us had almost no sleep," said Umm Hassan, a mother of seven.

An Israeli air raid flattened a building in the heart of a residential neighbourhood in Gaza, sending a cloud of dust into the air, shaking nearby dwellings and wounding five people. It was not immediately clear why the structure, which was apparently empty, was targeted.

Israel declared areas around Gaza a "closed military zone", citing the risk from Palestinian rocket fire, and ordering journalists observing a buildup of armoured forces to leave.

"You've got to go," an army spokesman told a Reuters correspondent after she appealed a military police directive to clear out.

Excluding the press could help Israel keep under wraps its preparations for a possible ground assault against Hamas, the Islamist militant group that controls Gaza, following three days of air strikes that have caused chaos, turned some buildings to rubble and left hospitals struggling to cope.

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In the southern Israeli city of Ashkelon, a rocket launched from the Hamas-controlled Gaza Strip killed one person.

Mark Regev, a spokesman for Israeli Prime Minister Ehud Olmert, said the military action, launched after a six-month ceasefire expired, would go on until the population in southern Israel "no longer live in terror and in fear of constant rocket barrages".

Broadening their targets to include the Hamas government, Israeli warplanes bombed the Gaza Interior Ministry today, Palestinian sources said. No immediate word was available on whether there were any casualties.

In what it called a "terrorist" attack, the Israeli military said a Palestinian stabbed three Israelis in the Jewish settlement of Kiryat Arba in the West Bank before he was shot by a passerby and arrested.

One of the wounded Israelis was in serious condition.

Hamas spokesman Fawzi Barhoum urged Palestinian groups on Sunday to use "all available means, including martyrdom operations" against Israel - a reference to suicide bombings during a Palestinian uprising that erupted in 2000 but has since died down.

The Gaza offensive has enraged Arabs across the Middle East. Protesters burned Israeli and US flags in several places to press for a stronger response from their leaders.

Hamas said 180 of its members had been killed and that the rest of the more than 300 dead included civilians, among them 16 women and some children.

Israeli Foreign Minister Tzipi Livni said Israel was targeting militants but "unfortunately in a war ... sometimes also civilians pay the price". Chief Palestinian negotiator Ahmed Qurie said US-backed peace talks with Israel have been put on hold, citing the Gaza offensive. The negotiations over the past year have achieved little visible progress.

The UN Security Council called for a halt to the violence, but US President George W Bush's administration, in its final weeks in office, has put the onus on Hamas to renew the truce.

Egyptian Foreign Minister Ahmed Aboul Gheit said during a visit to Turkey that "Israel must stop its killing operations against Palestinians". He called for an immediate ceasefire.

A senior Israeli official dismissed any suggestion that Israel had acted now because it believed a window of opportunity was closing with Bush leaving office and Barack Obama preparing to enter the White House.

"Why should everything be connected to the United States? A far more important date for Israel is February 10," the official said, referring to the upcoming Israeli parliamentary election.

"It wasn't politically sustainable for leaders in Israel to idly stand by and let Hamas continue shooting," the official said.