Palestinian prime minister Ismail Haniyeh today called for Palestinian militants and Israel to halt military operations in Gaza after 11 days of fierce fighting left nearly 40 Palestinians dead.
In a statement issued by his office in Gaza Haniyeh said: "In order to get out of the current crisis, it is necessary that all parties restore calm on the basis of mutually stopping all military operations.
Israeli forces earlier withdrew from most of the northern Gaza Strip, but clashes erupted near Gaza City, killing two more Palestinians including a policeman.
The Israeli army, which launched its offensive to free an abducted soldier, pulled out of the northern Gaza towns of Beit Lahiya and Beit Hanoun, the Erez industrial zone as well as three former Israeli settlements.
Israel had seized the area earlier this week, creating what amounted to a buffer zone along the strip's northern border to try to make it harder for militants to fire more rockets into Ashkelon, one of Israel's main coastal cities.
Rocket fire has not stopped, however. "We are acting at our own discretion and we do not rule out a return to these areas," an army spokesman said.
"The operation is not over."
Israeli naval vessels fired shells at suspected rocket launching sites soon after ground forces withdrew, the army said. Israeli troops remain in southern Gaza, at the disused international airport, as well as near the Karni commercial crossing east of Gaza City.
Israel has been under international pressure to scale back its military operations, which have so far killed more than 40 Palestinians, a majority of them militants. One Israeli soldier was also killed.
Palestinian witnesses said Israeli aircraft fired missiles at gunmen in the pre-dawn fighting on the edge of the densely packed neighborhood of Shijaia, an Islamist stronghold adjacent to the Karni commercial crossing.
Medics said the Palestinian policeman who was shot dead was wearing his uniform. It was unclear whether he was taking part in the fighting. An Israeli army spokesman said forces exchanged heavy fire with militants, but he was unaware of any policeman being hit.
UN Secretary General Kofi Annan has expressed concern about the escalating tensions.
"As the situation in Gaza continues to deteriorate, I appeal again to both sides to pull back from the brink for the sake of all civilians in the region," Mr Annan said in a statement.