* Israeli aircraft attack southern Gaza tunnels
* Israeli armour masses at Gaza border
* Livni says no plans to reoccupy Gaza Strip
* Hezbollah leader says forces on alert
By Nidal al-Mughrabi
GAZA, Dec 28 (Reuters) - Israel pounded Hamas targets in the Gaza Strip from the air on Sunday and prepared for a possible invasion after killing at least 296 Palestinians in two days of attacks.
Israel said the campaign that began on Saturday was a response to almost daily rocket and mortar fire that intensified after Hamas, the Islamist group in charge of the enclave that Israel quit in 2005, ended a six-month ceasefire a week ago.
During the first two days of the assault, militants fired some 80 rockets at Israel, emergency services said, less than some analysts had expected. Two rockets struck near the port of Ashdod, 30 km (18 miles) from Gaza, causing no casualties.
Israeli tanks deployed on the edge of the Gaza Strip, poised to enter the densely populated enclave of 1.5 million Palestinians. Prime Minister Ehud Olmert’s cabinet approved a call-up of 6,500 reservists, a government official said.
Foreign Minister Tzipi Livni, who hopes to become prime minister after a Feb. 10 election, appeared to rule out a large-scale invasion to restore Israeli control of the blockaded territory, once dotted with Jewish settlements.
"Our goal is not to reoccupy Gaza Strip," she said on NBC’s "Meet the Press" programme. Asked on Fox News if Israel was out to topple Gaza’s Hamas rulers, Livni replied: "Not now."
Mark Regev, a spokesman for Olmert, said Israel would press on with the campaign "until we have a new security environment in the south, when the population there will no longer live in terror and in fear of constant rocket barrages".
Asked how long the operation would last, Israel’s military spokesman, Avi Benayahu told an Israeli television channel it could "still take many days."
Hamas spokesman Fawzi Barhoum urged Palestinian groups to use "all available means, including martyrdom operations" — a reference to suicide bombings in Israel.
Keeping pressure on Hamas after bombing runs that turned Saturday into one of the bloodiest days for Palestinians in 60 years of conflict, Israeli aircraft flattened the group’s main security compound in Gaza, killing at least four security men.
Israel expanded its air campaign to the southern Gaza Strip, bombing some 40 smuggling tunnels running under the border with Egypt, a network that is a lifeline to the outside world.
Dozens of Gazans crossed into Egypt through holes opened in the border wall by bulldozers and explosives. Palestinian gunmen exchanged fire with Egyptian police who arrested dozens trying to stop the influx, witnesses said. Egyptian state television said Hamas forces shot dead an Egyptian border officer.
Israeli bombs destroyed Hamas’s southern headquarters and medical officials said several people were wounded. Air strikes after dark killed two people in a car and caused four injuries near the home of Hamas leader Ismail Haniyeh.
"SHOCK AND AWE"
The deaths raised to 296 the number of Palestinian dead since Saturday, when Israel launched what one Israeli newspaper columnist described as "shock and awe" air strikes against Hamas facilities. More than 700 Palestinians were wounded.
Hamas said 180 of its members were killed and the rest included civilians, among them 16 women and some children. "Palestine has never seen an uglier massacre," said Haniyeh.
Israel said the "vast majority" of the dead were militants. One Israeli was killed on Saturday by a rocket fired from Gaza.
Livni said Israel was "trying to make all the efforts to target only terrorists and Hamas headquarters and places, but unfortunately, in a war, like any war, sometimes also civilians pay the price".
Israeli military affairs commentators said Israeli leaders, wary of taking the political risk of reoccupying the Gaza Strip ahead of an election, were trying to bolster Israel’s deterrence power and force Hamas into a long-term truce.
Violence spread to the occupied West Bank, where Israeli soldiers opened fire at rock-throwing Palestinian protesters. Palestinian medical officials said two Palestinians were killed.
In Hebron, in the West Bank, Palestinian forces loyal to President Mahmoud Abbas of Fatah shot and wounded three people during a protest by Islamist groups in support of Hamas.
Israeli Arab citizens also held protests.
Sayyed Hassan Nasrallah, the leader of Lebanese Hezbollah guerrillas who fought a war with Israel in 2006, said he had asked fighters in south Lebanon to be on standby for a possible Israeli attack.
The U.N. Security Council called on all sides to cease fire. But an Israeli official said Israel was feeling little international pressure to halt its operations.
In the Gaza Strip, parents kept their children home from school as the roar of Israeli aircraft and thunder of explosions echoed. Schools in Israel’s south, due to reopen on Tuesday after the Jewish holiday of Hanukkah, were ordered to stay shut.
Abbas, speaking in Cairo, accused Hamas, which seized the Gaza Strip from Fatah in 2007, of triggering Israel’s raids by not extending the ceasefire that Egypt brokered in June.
U.S. President George W. Bush’s administration, in its final weeks in office, put the onus on Hamas to prevent more violence.
Aid groups said they feared a humanitarian crisis. Gaza hospitals said they were running out of supplies because of a long-standing Israeli-led blockade of the territory. (Additional reporting by Ari Rabinovitch, Dan Williams, Allyn Fisher-Ilan, Douglas Hamilton and Adam Entous in Jerusalem, Wafa Amr and Ali Sawafta in Ramallah, Writing by Jeffrey Heller; Editing by Matthew Tostevin)