But the demand was immediately rejected by Israel, which sent troops and tanks into northern Gaza on Monday and launched a sixth straight night of air raids to pressure the Palestinians into handing over the soldier.

"Faced with the Zionist enemy's persistence in taking military measures and aggressions, we give it a delay expiring Tuesday, July 4 at 6:00 am (0300 GMT)," said a statement from three groups that seized the teenage conscript in an attack on an army post eight days ago.

"If the enemy does not meet the demands we laid out in our previous statement... we will consider the matter closed and the enemy will be responsible for all results," said the statement from the Popular Resistance Committees, the armed wing of the ruling Hamas movement and the Army of Islam.

The government of Israeli Prime Minister Ehud Olmert, which has a force of 5,000 troops massed on the Gaza border, has so far rejected demands by militants for the release of Palestinian prisoners in its jails.

"We are studying the statement and for the moment are sticking to the official position expressed by the prime minister rejecting any negotiations with the kidnappers or giving into any blackmail," an Israeli military official said.

The latest salvos in the escalating Middle East crisis followed threats by the armed wing of Hamas -- boycotted as a terror group by Israel and the West -- that it would strike civilians in Israel if the Gaza offensive is not halted.

Israel has launched its biggest military operation in a year over the abduction of a 19-year-old soldier in a militant attack on June 25, warning it would use all its military might to secure his release.

The pan-Arab newspaper Al-Hayat reported that an Egyptian delegation mediating in the crisis had met the captive corporal, Gilad Shalit, in the Gaza Strip, but did not give a date or location.

Israel has used its firepower against militant and civilian targets across Gaza with wave after wave of night-time air strikes, and in a dramatic warning to Hamas Sunday hit the office of prime minister Ismail Haniya.

For the first time since Israel launched its Gaza assault overnight Tuesday, the military sent in its armour into the north of the territory, although it has so far held off from launching a threatened major ground offensive in the area.

An AFP photographer saw around 50 tanks and armoured personal carriers cross the border and slowly snake their way through farmland before heading towards the outskirts of built-up areas.

"A limited number of troops entered the northern Gaza Strip to conduct searches for explosive devices and tunnels" dug by militants into Israel, a military source said.

The raid followed a series of air strikes on weapons depots, a Hamas office and buildings run by the Al-Aqsa Martyrs Brigades, a militant group loosely affiliated to Palestinian president Mahmud Abbas's Fatah party.

Four Palestinians were reported wounded.

Haniya appealed for international intervention on Sunday after Israel struck at the heart of the Palestinian government, setting his Gaza office ablaze in a missile strike.

"It's an attack against a Palestinian symbol," said Haniya. "We ask the international community and the Arab League to take its responsibilities towards our people and intervene" to end what he called Israel's "insane policy."

The armed wing of Hamas threatened to retaliate by resuming attacks inside Israel, predicting the region would sink in a "sea of blood" if the offensive continued.

"The Ezzedine al-Qassam Brigades warn the Zionist enemy: if its operations continue, we will hit the occupation targets we were previously reluctant to strike," said a statement.

UN Secretary General Kofi Annan also expressed concern that the Israeli onslaught could undermine the possibilities for a lasting settlement of the Middle East conflict.

"I remain very concerned about the need to preserve Palestinian institutions and infrastructure -- they will be the basis for an eventual two-state solution and that's in the interest of both Israel and the Palestinians," he said.

Olmert's government has rejected outright the demands of the three militant groups holding Shalit, which have called for the release of 1,00 Palestinians held in Israeli jails as well as women and children prisoners.

It has also threatened to strike at Hamas leaders, including those based in Damascus, raising fears of a regional escalation of the worst crisis in the Middle East since Hamas came to power and Olmert took the helm in Israel.

"My government has instructed the IDF (army) and the security establishment to do everything in order to bring Gilad back home... and when I say everything, I mean everything," Olmert told Sunday's cabinet meeting.

The Israeli army on Sunday said it had shot dead three more militants in the southern Gaza Strip after approaching an army unit near the territory's disused airport. It was not immediately clear to which faction they belonged.

Israel last week hit the Hamas-run interior ministry in Gaza, detained scores of Hamas members in the occupied West Bank including eight ministers and more than 20 lawmakers, and revoked the Jerusalem residency of four others.

With the threat of a fullscale Israeli ground offensive looming, already impoverished residents of Gaza, one of the most densely populated areas on the planet with a population of 1.4 million, are grappling with shortages of food, fuel and electricity.

Israel has temporarily opened a border crossing to allow in supplies of humanitarian supplies including food, and it resumed pumping fuel.