The Israeli Prime Minister Ariel Sharon has announced he is giving Israel's army free rein to tackle Palestinian fighters in Gaza. Sharon also accused the new Palestinian leadership of doing nothing to stop attacks on Israelis.
The Israeli leader announced the escalation after a day of violence in which Israeli forces shot and killed eight Palestinians.
Meanwhile, Islamic Jihad leader Sheikh Nafez Azzam, demanding "Israel stop its aggression", said there could be no talk of a truce as long as raids against militants continued.
Palestinian officials said President Mahmoud Abbas would try again this week to win over fighters defying his calls for an end to a 4-year-old armed uprising so as to allow talks, but Israel suspects his approach is doomed to fail.
"Despite the change in Palestinian leadership, we have yet to see them taking any action against terror," Sharon told his cabinet.
"The Israeli military and security apparatus have been instructed to take any action needed without restriction to stop terror and they will continue to do so ... as long the Palestinians do not lift a finger."
Israeli media said the army might consider resuming assassinations of top militant leaders and could set up "security zones" in the Gaza Strip to prevent mortar and rocket fire aimed into Israel or at Jewish settlements.
Palestinian Foreign Minister Nabil Shaath said Abbas would go to Gaza on Wednesday to "resume discussions for peace".
Abbas, he said, would press militant groups to agree to a ceasefire that would have to be reciprocated by Israel and also try to persuade them to participate in parliamentary elections on July 17.
"We have to try. If we are willing to talk with our occupiers, shouldn't we talk to our brothers? We have to continue. This is not an easy task," Shaath said.
Earlier, Islamic Jihad leader Sheikh Nafez Azzam, demanding "Israel stop its aggression", said there could be no talk of a truce as long as raids against militants continued.
Israel has said it would not be a party to any formal ceasefire with militants but if their attacks stopped, it would respond in kind.
Sharon also has offered, in return for an end to anti-Israeli violence, to coordinate with the Palestinian Authority aspects of its plan to partially evacuate troops and settlers from the occupied territories this year.
Violence choked new hopes of peace even as Abbas was sworn in to succeed Yasser Arafat on Saturday. Troops killed eight Palestinians in Gaza , several of them gunmen, two days after the deadly militant attack on the border crossing.
"We need to reach a period of serious calm and Israel should also reciprocate," Palestinian Prime Minister Ahmed Qurie told Reuters.
Abbas failed to win a ceasefire ahead of last Sunday's election not only from Islamist groups sworn to destroy Israel, but also from factions with his own Fatah movement demanding a state on land captured by Israel in the 1967 war.