At least 16 Palestinians were killed in fierce factional fighting in Gaza on Wednesday and Israel launched an air strike on a Hamas compound that killed at least four gunmen.
Hamas declared a cease-fire in factional fighting, effective at 1700 GMT, and a Fatah official said President Mahmoud Abbas issued similar orders to his men. Previous truces have fallen apart within hours and it was unclear if this one would hold.
Palestinian officials said the widening hostilities could bring down a two-month-old unity government formed between ruling Hamas and Abbas's secular Fatah. Some Palestinians see this leading to all-out civil war and the end of the Palestinian Authority.
Terrified Gaza residents hid indoors as masked gunmen fought running battles street-to-street. In one panicked call to a radio station, a woman appealed to Palestinian leaders to act, pleading: "Do not leave us to die here."
The Israeli air strike flattened a building used by Hamas's Executive Force in the southern Gaza town of Rafah, but the army said the attack was not connected to internal clashes that have killed at least 40 people since Friday.
While Gaza battles raged, militants have fired rockets at southern Israel, causing injuries but no deaths, in an apparent attempt to draw Israel into the fighting.
Israel has reserved the right to respond to rocket fire and the army said the Hamas building was targeted because it was a command centre used to plan such attacks. The Executive Force, which has taken a lead in fighting with Fatah, denied the building was used to plan rocket attacks and said the air strike was proof that Israel was taking sides.
Foreign Minister Tzipi Livni said Israel may step up military strikes in the Gaza Strip in response to a surge of Palestinian cross-border rocket salvoes. "Until now, we have demonstrated restraint, but this situation is not a tolerable situation," Livni told reporters after holding security consultations with Prime Minister Ehud Olmert and Defence Minister Amir Peretz. Israel faces a delicate balancing act. It is under heavy domestic pressure to stop the rockets.
It also wants Fatah to deal a blow to Hamas, and provided assistance on Tuesday by agreeing to let 450 Fatah troops into Gaza from Egypt. But overt Israeli assistance for Fatah could backfire if Hamas is able to paint Abbas as an ally of the Jewish state, which many Palestinians see as their real enemy.
"We will not intervene in the war itself but if Mr Abbas will request specific help, we will supply (it)," Israeli Vice Premier Shimon Peres told reporters in Estonia.
In Wednesday's internal violence, Hamas gunmen stormed the home of Abbas's top security chief, Rashid Abu Shbak. Hamas fired mortars at Abbas's compound and set fire to a building where the head of a pro-Fatah security service lives. At least 50 journalists were trapped in Gaza's main media centre. They said the building was surrounded by gunmen.
Some Western officials say the government's collapse could allow Abbas to assert more control, leading to an end to a Western aid embargo, ahead of possible early elections. Several Fatah leaders have urged Abbas to declare a state of emergency, which could allow him to rule by decree for a limited period of time.
A Palestinian official said Abbas cancelled a trip to Jordan and would travel to Gaza on Thursday to try to restore calm. In Wednesday's deadliest single attack, five detained Hamas gunmen and two Fatah escorts were killed when their vehicle, travelling to a detention centre, came under fire.
Security officials said the vehicle was attacked by Hamas fighters, but a spokesman for Hamas's Executive Force said they were "executed ... in cold blood" by Fatah. Hamas said another of its members was "executed" earlier in the day by Fatah gunmen at a checkpoint. Fatah said at least nine of its members were killed in Wednesday's fighting.
Hamas later called a unilateral cease-fire, a spokesman said. Previous cease-fires fell apart within hours and it was unclear whether this one would be any different. Fatah's forces are larger in number. But many analysts believe Hamas's Executive Force and armed wing are better equipped, organised, and driven by religious conviction.