Israel warned the governing Palestinian faction Hamas that the "sky will fall on them" if they harm a captured soldier after a deadline passed on Tuesday for the Jewish state to accept a prisoner exchange.
While Israeli tanks and infantry massed along the Gaza Strip's northern border for a threatened ground incursion, Prime Minister Ehud Olmert said the campaign to free Corporal Gilad Shalit could turn into "a long war".
Three Palestinian factions, among them the Hamas armed wing, pulled out of negotiations with Egyptian mediators trying to end the stand-off over Shalit, a Hamas political leader said.
Israel rejected the 6 am (0300 GMT) ultimatum set by the factions, which demanded that the Jewish state free 1,000 prisoners in exchange for Shalit. But Palestinian Prime Minister Ismail Haniyeh of Hamas called on the factions to return to the negotiating table, putting himself at odds with militants who said further discussions over Shalit's fate were out of the question. Haniyeh, whom Israel has hinted could be targeted for assassination, also urged militants to keep Shalit alive.
The factions had warned Israel that it will "bear full responsibility for future consequences" if their prisoner swap demands were not met. Israel has given the army a green light to launch a deeper incursion into northern Gaza, though there was no indication when it might begin, the Maariv newspaper reported.
"This is a long war," Olmert said. "It requires lots of patience, sometimes endless restraint. We have to know when to clench our teeth and to deal a decisive blow."
Washington has been urging Olmert to show restraint and take steps to minimise civilian casualties.
Hamas accused Israel of trying to topple its three-month-old government, which the Jewish state and Western powers have pushed to the brink of financial collapse by cutting off aid.
The smallest of the three militant groups, the previously unknown Islamic Army, said there would be no further information released on 19-year-old Shalit, who was seized in a cross-border raid on June 25. They sent conflicting signals about his fate.
"Whether he will be killed or not killed, we will not disclose any information ... Discussion is closed," said Islamic Army spokesman Abu al-Muthana. But he later said: "We do not kill captives. Our Islam requires that we treat captives well and fairly." He declined to say whether Shalit was alive or dead.
ISRAELI BUILD-UP: Palestinian security sources said Israel had increased the number of armoured vehicles on the northern edge of the strip, which Israel quit last year.
A small Israeli force moved deeper into northern Gaza in search of explosives and tunnels but the army said it was not part of a broader incursion. Overnight, an Israeli air strike in northern Gaza killed one militant.
Israel has hinted it could assassinate leaders of Hamas, whose government is under an international aid embargo, if Shalit is not freed. "I want to stress, none of them will be immune," Olmert said. Interior Minister Roni Bar-On told Israel Radio: "Hamas well understands ... that the sky will fall on them if they harm Gilad Shalit."
In a show of defiance, Haniyeh met publicly with what remains of his cabinet for the first time since Israel bombed the prime minister's empty office in Gaza on Sunday. Israel has detained more than a third of Haniyeh's cabinet and dozens of Hamas lawmakers and officials in the occupied West Bank.
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