UPDATE 1-Taiwan unveils US$29 bln stimulus amid uncertainty over U.S., China
* Stimulus to boost domestic demand amid heavy reliance on exports
* Egyptian PM's brought truce feelers
* Temporary ceasefire broken immediately
* Signs of preparations for possible invasion
* Tel Aviv shaken by new rocket scare
By Nidal al-Mughrabi
GAZA, Nov 16 Egypt tried to open a tiny window to emergency peace diplomacy in Gaza on Friday, but hopes for even a brief ceasefire while its prime minister was inside the bombarded enclave to talk to leaders of the Islamist Hamas movement were immediately dashed.
Prime Minister Hisham Kandil visited the Gaza Strip officially to show solidarity with the Palestinian people after two days of relentless attacks by Israeli warplanes determined to end militant rocket fire at Israel.
A Palestinian official close to Egypt's mediators told Reuters Kandil's visit "was the beginning of a process to explore the possibility of reaching a truce. It is early to speak of any details or of how things will evolve".
Israel undertook to cease fire during the visit if Hamas did too. But it said rockets fired from Gaza hit several sites in southern Israel as he was in the enclave and has begun drafting 16,000 reserve troops, a possible precursor to invasion.
Tanks and self-propelled guns were seen near the border area of Friday and sirens sounded again over Tel Aviv, after witnesses in Gaza saw a long-range rocket launched. Israeli police said it landed in the sea off Israel's commercial centre.
A Hamas source said the Israeli air force launched an attack on the house of Hamas's commander for southern Gaza which resulted in the death of two civilians, one a child.
Israel's military strongly denied carrying out any attack from the time Kandil entered Gaza, and accused Hamas of violating the three-hour deal.
"Even though about 50 rockets have fallen in Israel over the past two hours, we chose not to attack in Gaza due to the visit of the Egyptian prime minister. Hamas is lying and reporting otherwise," the army said in a Twitter message.
Kandil said: "Egypt will spare no effort ... to stop the aggression and to achieve a truce."
At a Gaza hospital he held the bloodied body of a child. He left the Gaza Strip after meeting with Hamas leader Ismail Haniyeh, the enclave's prime minister.
Palestinian medics said two people were killed in the disputed explosion at the house, one of them a child. It raised the Palestinian death toll since Wednesday to 22. Three Israelis were killed by a rocket on Thursday.
The Palestinian dead include eight militants and 14 civilians, among them seven children and a pregnant woman. A Hamas rocket killed three Israeli civilians in a town north of Gaza, men and women in their 30s, hitting their apartment.
GERMANY BLAMES HAMAS
The Gaza conflagration has stoked the flames of a Middle East ablaze with two years of Arab revolution and a civil war in Syria that threatens to engulf the whole region.
German Chancellor Angela Merkel called on Egypt to use its influence on Hamas to bring the violence to an end, her spokesman said, adding that Israel had the "right and obligation" to protect its population.
"Hamas in Gaza is responsible for the outbreak of violence," Merkel's spokesman Georg Streiter told a news conference. "There is no justification for the shooting of rockets at Israel, which has led to massive suffering of the civilian population."
Chief Palestinian peace negotiator Saeb Erekat, whose efforts to achieve a treaty with Israel are scorned by Hamas as treason, said Palestinian President Mahmoud Abbas's "efforts are focused on one thing: deescalate the violence and save lives in Gaza. That's what we're hoping for."
"No amount of pressure can stop our efforts at the United Nations" to obtain a General Assembly vote at the end of the month granting observer status to the Palestinian territories, including the Gaza Strip, West Bank and East Jerusalem, he said.
Hamas rejects the diplomacy of Abbas outright. But Erekat said: "It is our brothers' and sisters' blood. This is no time for internal squabbles or pointing fingers."
Air raid sirens wailed over Tel Aviv on Thursday evening, sending residents rushing for shelter, and two long-range rockets exploded just south of the metropolis. The location of the impacts was not disclosed.
They exploded harmlessly, police said. But they shook the 40 percent of Israelis who, until now, lived in safety beyond range of the southern rocket zone.
"Even Prime Minister (Benjamin) Netanyahu was rushed into a reinforced room," said cabinet minister Gilad Eldan.
Just as in late 2008, Israel's demands that Hamas and other militants stop firing rockets at southern towns appeared to be being ignored, and the fire was increasing.
The last Gaza war, involving a three-week long Israeli air blitz and ground invasion over the New Year period of 2008-2009, left more than 1,400 Palestinians dead, mostly civilian, and killed 13 Israelis.
"If Hamas says it understands the message and commits to a long ceasefire, via the Egyptians or anyone else, this is what we want. We want quiet in the south and a stronger deterrence," Israeli vice prime minister Moshe Yaalon said.
"The Egyptians have been a pipeline for passing messages. Hamas always turns (to them) to request a ceasefire. We are in contact with the Egyptian defence ministry. And it could be a channel in which a ceasefire is reached," he told Israeli radio.
Tunisia's foreign minister was due to visit Gaza on Saturday "to provide all political support for Gaza" the spokesman for the Tunisian president, Moncef Marzouki, said in a statement.
On Israel's side of the border there were signs of possible preparations for a ground assault on Gaza. In pre-dawn strikes, warplanes bombed open land along the fence, in what could be a softening-up stage to clear the way for tanks.
The United States asked countries that have contact with Hamas to urge the Islamist movement to stop its rocket attacks.
EGYPT ON THE SPOT
Hamas refuses to recognise Israel's right to exist. By contrast, Abbas, who rules in the nearby West Bank, does recognise Israel, but peace talks between the two sides have been frozen since 2010.
Abbas's supporters say they will push ahead with their plan to become an "observer state" rather than a mere "entity" at the United Nations later this month.
Egypt's new Islamist president, Mohamed Mursi, viewed by Hamas as a protector, led a chorus of denunciation of the Israeli strikes by allies of the Palestinians.
The conflict poses a test of Mursi's commitment to Egypt's 1979 peace treaty with Israel, which the West views as the bedrock of Middle East peace.
The Muslim Brotherhood, which brought him to power in an election after the downfall of pro-Western Hosni Mubarak, has called for a "Day of Rage" in Arab capitals on Friday.
The Israel Defence Forces (IDF) said they had targeted over 450 "terror activity sites" in the Gaza Strip since Operation Pillar of Defence began with the assassination of Hamas' top military commander on Wednesday by an Israeli missile.
Some 150 medium range rocket launching sites and ammunition dumps were targeted overnight, the IDF said.
"The sites that were targeted were positively identified by precise intelligence over the course of months," it said. "The Gaza strip has been turned into a frontal base for Iran, forcing Israeli citizens to live under unbearable circumstances."
* Stimulus to boost domestic demand amid heavy reliance on exports
March 23 The following are the top stories on the New York Times business pages. Reuters has not verified these stories and does not vouch for their accuracy.