The chances of a ceasefire between Israel and Hamas dimmed further on Monday, after the Israeli government rebuffed an Egypt-sponsored ceasefire proposal and a rocket fired by Palestinian militants killed an Israeli citizen close to the Gaza strip.

The death came hours after Israeli leaders said it would only consider a truce if it included the release of a soldier held captive by the Islamist group in the Gaza Strip – a demand not previously made.

The demand was raised both by Ehud Olmert, the prime minister, and Ehud Barak, the defence minister, in their meetings with Omar Suleiman, the head of Egypt’s intelligence service and the official at the centre of his government’s mediation efforts over the past months.

Hamas and several other militant Palestinian groups based in the Gaza Strip said last month they were ready for a six-month ceasefire with Israel.

The groups, which use the territory as a launch-pad for frequent rocket attacks on nearby Israeli towns, want Israel in return to stop its regular attacks on Gaza, and demand an end to the heavy economic sanctions imposed on the crowded and impoverished strip.

Israeli officials said at the time they were sceptical that the Hamas offer was genuine, and laid out three conditions for a truce: an end to rocket attacks, an end to other violent attacks inside Israel and an end to the smuggling of weapons into the Gaza Strip.

The release of Gilad Shalit, the Israeli soldier captured by Hamas two years ago, was not mentioned as a condition at the time. It is, however, a very sensitive domestic issue for Mr Olmert.

Hamas, which says it is ready to free Mr Shalit in exchange for the release of hundreds of Palestinian prisoners held in Israel, wants the prisoner exchange to be dealt with separately.

Hamas officials said Israel was trying to torpedo the possibility of a truce. “Any new conditions are an attempt to sabotage [the Egyptian] efforts,” Sami Abu Zuhri, Hamas spokesman, told Reuters.

In the Gaza Strip, Ismail Haniyeh, Hamas leader, called on Israel to “respond positively to the Egyptian efforts and to lift the siege and open the [border] crossings”.

But the spokesman for Mr Olmert said on Monday: “Hamas cannot expect Israel to ignore the fact that they are holding one of our young servicemen.”

Despite Egypt’s mediation efforts – which have had the backing of Washington – and both sides’ professed readiness for a truce, the past weeks have seen heavy fighting and several deadly attacks in an around the Gaza Strip.

Last Friday, a mortar fired from the territory killed an Israeli man, and five Palestinians – Hamas members – died when Israeli forces retaliated with rocket fire.

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