Israel plans ceasefire, Hamas vows to fight on
* Israel plans to halt Gaza offensive - senior official
* Hamas vows to fight on if demands not met
* Mubarak urges Israel to stop military operations
* Olmert to speak after evening cabinet meeting
By Nidal al-Mughrabi
GAZA, Jan 17 (Reuters) - Israel plans to halt its Gaza offensive without any deal with Hamas, an Israeli official said on Saturday, in an apparent effort to deny the Islamist group any gains from the three-week-old conflict.
Hamas leaders in exile have vowed to fight on, but many of the 1.5 million Palestinians enduring incessant bombardment and privation in Gaza seemed desperate for their ordeal to end.
"The goal is to announce, subject to cabinet approval, a suspension of military activities because we believe our goals have been attained," said the official, asking not to be named.
Israel launched air strikes on the Gaza Strip on Dec. 27 and ground troops pushed in a week later.
Without an accord with Hamas, diplomats said they feared Israel would let only a trickle of goods into Gaza, hampering reconstruction and creating more hardship for its people.
The security cabinet is due to meet in the evening and Prime Minister Ehud Olmert will address the nation after that.
"There is no agreement with Hamas," the Israeli official said, adding that Israel would reserve the right to act if Hamas continued firing or launched rockets across the border.
A Hamas official in Beirut said earlier the militants would keep fighting until Israel met their demands, mainly for an end to a crippling economic blockade.
Egyptian President Hosni Mubarak urged Israel to end its military operations immediately and planned to host a reconstruction conference, but he did not say when.
Western diplomats said Cairo was also planning a meeting of world leaders on Gaza as early as Sunday. U.N. Secretary-General Ban Ki-moon and several European leaders were expected to attend, the diplomats said.
Israeli forces attacked 50 targets in the coastal enclave overnight. Tank fire killed two boys sheltering at a United Nations school, a U.N. official said.
"These two little boys are as innocent, indisputably, as they are dead," John Ging, head of the U.N. Relief and Works Agency (UNRWA) in Gaza, told Reuters after the school was hit.
The Israeli army was checking the report. A spokesman said troops do not target civilians but respond when fired on.
In addition to declaring a unilateral ceasefire, Israeli officials said they expected Israel and Egypt to reach an agreement on increased security along the Gaza-Egyptian border.
Under its terms, they said, the Rafah border crossing would only reopen in line with a 2005 agreement with the Palestinian Authority, which calls for President Mahmoud Abbas's forces to be in control and for Europeans to monitor traffic.
Hamas drove Abbas's forces from Gaza in June 2007, 18 months after defeating his secular Fatah faction in a Palestinian election. It no longer recognises him as president.
Abbas will meet Mubarak in Cairo on Sunday, his aides said.
Gaza's crossings with Israel were likely to open initially only for humanitarian supplies, the Israeli officials said. Israeli leaders want to link opening the passages fully to talks over Gilad Shalit, an Israeli soldier held in Gaza by Hamas.
Hamas negotiators were due to meet Egyptian officials to discuss Israel's response to truce terms they have offered.
"Either we hear what we have demanded or the result will be the continuation of confrontation on the ground," Osama Hamdan, Hamas's representative in Lebanon, declared in Beirut.
Hamas has offered a one-year, renewable truce on condition that all Israeli forces leave Gaza within a week and that all the border crossings with Israel and Egypt are opened.
Israel appears keen to halt Gaza hostilities before Barack Obama is sworn in as U.S. president on Tuesday, to avoid clouding a historic day for its main ally. Israelis mostly back the war, but much of the world wants the bloodshed to stop.
At least 1,203 Palestinians have been killed, including 410 children, and 5,300 wounded, Hamas health officials said.
Ten Israeli soldiers and three civilians, hit by rockets fired from Gaza, have been killed during the offensive.
Four soldiers were seriously wounded on Saturday, possibly by "friendly fire", an Israeli military spokesman said.
Ging, the UNRWA chief, said Israeli tank fire killed the two brothers, aged 5 and 7, in a U.N. school in the northern town of Beit Lahiya where they had sought sanctuary. Their mother, who was among 14 wounded, had her legs blown off.
"The question now being asked is: Is this and the killing of all other innocent civilians in Gaza a war crime?" Ging said.
About 45,000 Gazans fleeing battle zones are sheltering in U.N.-run schools in the enclave. On Jan. 6 Israeli shelling killed 42 people who had taken refuge at a U.N. school. An UNRWA compound was hit twice on Thursday and three staff were wounded.
Hamas rocket fire has dwindled but not ceased. Seven rockets hit Israel on Saturday, causing no casualties, the army said. (Writing by Alistair Lyon; Additional reporting by Adam Entous, Ari Rabinovitch, Luke Baker and Ori Lewis in Jerusalem, Alaa Shahine in Cairo, and Yara Bayoumy in Beirut)