Israeli leaders defer "final" Gaza thrust

(Adds Barak aide, updates death toll)

By Dan Williams

JERUSALEM, Jan 7 (Reuters) - Israel postponed on Wednesday a decision on whether to order its armed forces to storm the Gaza Strip's urban centres, an Israeli official said, citing Egyptian- and French-led efforts to secure a truce with Hamas.

Escalating from a week-long air assault, Israeli troops and tanks invaded the coastal enclave on Saturday, clashing with Palestinian guerrillas but not advancing beyond the outskirts of the city of Gaza or other densely populated areas.

Israel called the initial ground sweep the "second stage" of an operation to counter cross-border Palestinian rocket salvoes, without giving details on what might follow. That opacity helped spur a frenzy of international ceasefire mediation.

Prime Minister Ehud Olmert's security cabinet convened on Wednesday morning to discuss the third -- and final -- stage of the offensive but deferred voting on it to an undisclosed date.

"The plan is to enter the urban centres," one official, who declined to be named, said before the closed-door deliberations.

Postponing a final decision on the plan allowed Israel to keep its forces in readiness while maintaining leeway for any breakthrough in the Egyptian- and French-led ceasefire talks.

"We are pursuing parallel military and diplomatic tracks, so this is no simple matter," an Israeli defence official said.

Amos Gilad, a senior aide to Defence Minister Ehud Barak, told Israel's Army Radio the Gaza sweep was "at a cross-roads".

"Ministers dealing with this will decide, on the basis of Israel's national interest, when the point comes to step up (operations), or scale down, and what that entails," he said.



CHALLENGE

Military analysts believe Israeli forces would be severely tested by combat in Gaza's congested casbahs and alleyways, where much of their air support would be irrelevant and where Palestinian gunmen would be able to mount hit-and-run ambushes.

Conquering Gaza could amount to a reoccupation of a territory the Jewish state captured from Egypt in a 1967 war and quit in 2005. Israeli leaders have said they do not want to reoccupy Gaza or, for now, to topple the Islamist Hamas rule.

Seven Israeli soldiers have died in an offensive that has killed more than 650 Palestinians, at least a quarter of them civilians, according to U.N. officials and Gazan medics. Palestinian rockets have also killed three Israeli civilians.

Israel said its troops had killed at least 130 guerrillas since Saturday, a figure that suggested the total Palestinian death toll since Dec. 27 might be close to 780 and that bodies could still be on the battlefield.

According to an Israeli source with knowledge of the security cabinet's discussions, the initial ground sweep was executed well but the military top brass was disappointed by what they saw as relatively little Palestinian resistance.

"The assumption was that our forces could draw out the enemy into open areas where they could be eliminated, but they didn't come out in the number we expected," the source said. "Taking the fight into the populated areas would be much tougher."

Hamas spokesman Abu Ubaida said in a speech on Monday: "We have prepared for you, Zionists, thousands of tough fighters who are waiting for you in every street, every alley and at every house, and they will meet you with iron and fire." (Editing by Ralph Boulton)