GAZA (Reuters) - Israeli aircraft and tanks pounded the Gaza Strip on Wednesday and troops battled Palestinian guerrillas on the ground as U.S. backing for a proposed truce raised expectations of an end to the 12-day-old offensive.

“We believe a ceasefire is necessary,” Secretary of State Condoleezza Rice said, adding that she was pressing Israel to move forward with an Egyptian proposal backed by Europeans.

Israel’s assault resumed fiercely after a first, brief pause to help Gaza’s 1.5 million people stock up on supplies.

But with both the outgoing administration of George W. Bush and the hitherto silent President-elect Barack Obama speaking out on the need for peace, officials said Israel had agreed with the “principles” of the Egyptian deal and would send an envoy to Cairo to discuss details of how it might be put into practice.

That may yet take time.

Rice echoed Israel’s concerns that a deal achieve its goal of stopping the Hamas Islamists who rule Gaza from hitting Israel with rockets: “It has to be a ceasefire that will not allow a return to the status quo,” she said.

However, Israeli ministers put off a decision on whether to launch a new phase of the war by storming Gaza’s urban centers.

Hamas said it was looking at the Egyptian plan, brokered by France, which addresses Israel’s demand that Hamas be prevented from rearming through smuggling tunnels from Egypt and also addresses Hamas’s call for an end to Israel’s wider embargo.

A further 20 people were killed, medics said, including three children in an air strike on a car. It was a lower toll than on other days but took the total of Palestinian deaths since December 27 to at least 658 -- by far the bloodiest episode in decades in the conflict between Israel and Palestinians.

Israeli television aired army footage showing troops herding handcuffed and blindfolded prisoners in civilian clothes.

Ten Israelis have died in the past 12 days, seven of them soldiers, including four killed by “friendly” fire.

U.N. officials have said a quarter of the Palestinian dead were civilians, while other accounts put that proportion higher.

SCHOOL CARNAGE

Tuesday’s killing by Israeli shells of 42 people, including women and children sheltering in a United Nations-run school in Jabalya refugee camp, intensified international pressure on Israel to call a halt. U.N. officials denied an Israeli army account that militants had been firing from the school.

Israel, however, has said it will press on until Hamas can no longer hit its southern towns with rockets.

Israeli leaders, censured by voters over a costly war against Lebanon’s Hezbollah guerrillas in 2006, face a parliamentary election in a month and will want to show the public the campaign in Gaza has met that objective.

Rockets had killed 18 people over the past 7 years. Four more have been killed by missiles during the war and police said 15 missiles landed in Israel again on Wednesday.

Slideshow ( 33 images )

However, American involvement of the kind that helped end the Lebanon war and which was perceived as absent in the first week of the Gaza fighting, may indicate that, whatever the state of combat on the ground, a ceasefire could be on the cards.

A spokesman for Prime Minister Ehud Olmert said: “There is a broad understanding on the general principles of a solution.”

But a senior Israeli official, speaking on condition of anonymity, cautioned: “Translating those principles into practical action is a challenge that is still ahead of us.”

Obama, who has steered clear of involvement ahead of his inauguration on January 20, said he would “engage immediately” on the Middle East situation once he took office.

Slideshow ( 33 images )

Some Israeli analysts say Israel faces a deadline to wrap up its campaign by the time Obama is sworn in, or risk a strain in ties with Washington at the outset of the new administration.

As diplomatic efforts continued at the United Nations in New York, British Foreign Secretary David Miliband said: “I have seen the first glimmerings of the possibility of a ceasefire.

“It’s far too early to say we can get a breakthrough.”

EUROPEAN FORCE

European governments have proposed backing the Egyptian ceasefire proposal with an EU force along the Gaza-Egypt border that would prevent Hamas rearming through its many tunnels.

Javier Solana, the European Union’s foreign policy chief said the EU was prepared to help Egypt prevent arms smuggling along its border with Gaza: “Today we have the will, today we have the technology, today we have the means ... to prevent that smuggling of weapons takes place,” Solana said by telephone.

Israel has pounded the area around the frontier town of Rafah and warned residents on Wednesday to leave their homes.

Troops continued efforts to destroy a warren of tunnels that have been Gaza’s main supply route since Israel tightened a blockade following Hamas’s seizure of control in Gaza in 2007.

Hamas, which has backing from Israel’s enemies in Iran and Syria and which won a parliamentary election in 2006, is bitterly at odds with Palestinian President Mahmoud Abbas, who has sought to negotiate a peace deal with Israel.

Among Hamas’s priorities is securing a lifting of Israel’s embargo. Hamas called off a six-month ceasefire late last month, accusing Israel of breaking an agreement to ease supplies.

“Aggression must stop, the siege must be lifted and Zionist forces must pull out, and then we can talk about other issues, including calm and rockets,” said its spokesman Fawzi Barhoum.

The schism between the two Palestinian factions has dimmed prospects for a deal to create a Palestinian state and end 60 years of conflict. Unlike Abbas, Hamas refuses to accept the existence of Israel, though it has offered a long-term truce.

Egypt has said it would aim to re-launch efforts to broker a reconciliation between Abbas and Hamas after a Gaza ceasefire.

Palestinians in Gaza ventured outside to shop for food during the three-hour lull in fighting Israel said it would now implement daily to facilitate a flow of aid to the territory.

“Food and milk -- what else can we hope for in three hours,” said Ahmed Abu Kamel, a father of six. “We want it all to end.”