* Israeli artillery bombards downtown Gaza
* Ceasefire talks stepped up but fighting goes on
* Gaza officials says more than 1,000 Palestinians dead
* U.N.’s Ban in region to press for truce
By Nidal al-Mughrabi
GAZA, Jan 15 (Reuters) - Israeli tanks and artillery submitted Gaza city to relentless shelling early on Thursday, despite signs of progress in the international effort to bring about a ceasefire to the 20-day conflict.
Live video footage from a Reuters camera in downtown Gaza showed sustained flashes of artillery from the edge of the city for nearly two hours. Shells exploded in downtown areas and long bursts of heavy machinegun fire rang out, residents said.
Israeli forces have encircled the city of 500,000 people for days. Tanks have made forays towards the centre to test the resistance of Hamas and other militant groups but have held off a full-scale assault on the densely populated urban maze.
The Palestinian death toll from the air-and-ground offensive rose to at least 1,024 on Wednesday, according to the Hamas-run Health Ministry in Gaza. A Palestinian rights group said 670 of the dead were civilians. Thirteen Israelis have been killed: 10 soldiers and three civilians hit by Hamas rocket fire.
As the toll mounts, ceasefire negotiations have intensified.
An Israeli envoy will meet Egyptian mediators in Cairo on Thursday after a Hamas delegation concluded talks on an Egyptian truce proposal by repeating their demand that Israel withdraw its troops and lift a long-standing blockade on coastal Gaza.
In the West Bank on Wednesday, Spain’s Foreign Minister Miguel Angel Moratinos, a former EU Middle East envoy, said: "My perception is we are very close to reaching a ceasefire. They are very close but still there is some work to be done."
In Cairo, Hamas official Salah al-Bardawil said: "The movement has presented a detailed vision to the Egyptian leadership so it can continue its pursuit to end the aggression and lift the injustice on our people in the Gaza Strip."
Israel, which wants an end to rocket attacks on its towns and guarantees that Hamas cannot smuggle in more weapons from tunnels to neighbouring Egypt, said it would not agree to a truce allowing the Palestinian Islamists to regroup and rearm.
"Israel seeks a durable quiet that contains a total absence of hostile fire from Gaza into Israel and a working mechanism to prevent Hamas from rearming," said Mark Regev, a spokesman for Prime Minister Ehud Olmert.
STEPPED UP DIPLOMACY
Having launched the Gaza offensive on Dec. 27 to counter Palestinian rocket fire, the Israeli government has been unclear about whether the assault could soon end or be stepped up. Political analysts see a possible deadline in Tuesday’s installation of Barack Obama as U.S. president, after which Israel may be reluctant to test the support of the White House for a military campaign that has stirred international outrage.
Israelis also face a Feb. 10 election which will pit Foreign Minister Tzipi Livni, Defence Minister Ehud Barak and opposition leader Benjamin Netanyahu against one another, straining the cross-partisan support that the offensive has enjoyed so far.
Underscoring its demand for an end to Hamas arms-smuggling, Israel sent warplanes to drop more bunker-busting bombs along the 15 km (9 mile) sandy frontier between Gaza and Egypt.
"They used bombs that went deep into the tunnels and shook the whole Rafah refugee camp. The land trembled beneath our feet," said Bassam Abdallah, a local Palestinian cameraman.
Since the offensive began, Hamas rocket fire into Israel has declined sharply, but militants still managed to launch 14 rockets at Israel on Wednesday, the army said. There was some damage to buildings but no casualties.
In Cairo, U.N. Secretary-General Ban Ki-moon — who arrived in the region on Wednesday for several days of intense diplomacy on the conflict — renewed his call for "an immediate and durable ceasefire" between Israel and Hamas. The Islamist group swept Palestinian elections in 2006 but has been shunned by the West for its hostility to Israel.
Looking to draw on Arab and Muslim anger at the offensive, al Qaeda leader Osama bin Laden issued an audio message on Islamist websites urging jihad (holy struggle) against Israel.
Addressing "our brothers in Palestine", he said: "We are with you and we will not let you down. Our fate is tied to yours in fighting the Crusader-Zionist coalition, in fighting until victory or martyrdom."
With Israeli troops edging closer to the heart of the city of Gaza, international organisations have expressed growing concern about the plight of civilians trapped there.
Human rights groups have reported shortages of vital supplies, including water, in the Hamas-ruled territory. A fuel shortage has brought frequent power blackouts.
Israel has permitted almost daily truck shipments of food and medicine. But Human Rights Watch said Israel’s daily three-hour break in attacks to facilitate the supply of humanitarian aid to Gazans was "woefully insufficient". (Additional reporting by Allyn Fisher-Ilan and Adam Entous in Jerusalem, and by Beirut and Cairo bureaux; Writing by Alastair Macdonald and Dan Williams; Editing by Angus MacSwan)