Palestinian militants who abducted an Israeli soldier gave Israel less than 24 hours yesterday to meet their demands to release Palestinian prisoners, threatening unspecified consequences if it refused.
Israeli Prime Minister Ehud Olmert rejected the ultimatum and his defence chief said Israel would "know how to reach everyone responsible" if Corporal Gilad Shalit was harmed.
"If the enemy does not agree to our humanitarian demands ... we will regard this case as closed," said "Military Communique 3", issued by the armed wing of the governing Hamas movement and two other factions.
"We give the Zionist enemy until 6 a.m. (0300 GMT) tomorrow, Tuesday, the fourth of July,"the statement said.
In previous communiques, the groups called on Israel, as a first stage, to release some 400 Palestinian women and youths in its prisons in return for information about Mr Shalit, abducted in a June 25 raid launched from Gaza.
The groups - Hamas' Izz el-Deen al-Qassam Brigades, the Popular Resistance Committees and the previously unknown Islamic Army - subsequently demanded Israel free 1,000 Palestinian prisoners.
Unless the demands were met, the factions said,"the enemy will bear full responsibility for future consequences".
The statement accused Israel, mounting an offensive in Gaza, of bad faith in an Egyptian mediation effort to end the crisis.
"The government of Israel will not yield to the extortion of the Palestinian Authority and the Hamas government, which are led by murderous terrorist organisations," Mr Olmert's office said in a statement.
"We will not conduct any negotiations on a prisoner release," it said. "The Palestinian Authority bears full responsibility for the well-being of Gilad Shalit and his return, safe and sound, to Israel."
Hamas sources said Western diplomats, whom they did not name, had told the group that Israel had prepared a 13-man hit list headed by exiled leader Khaled Meshaal and including Prime Minister Ismail Haniyeh and Foreign Minister Mahmoud al-Zahar.
Western countries, that have cut off aid to the Hamas-led Palestinian government, have urged militants to release the soldier and called on Israel to show restraint in its military actions in Gaza.
Israel, which pulled out of Gaza last year, sent troops and tanks into the southern Gaza Strip last Wednesday after gunmen seized Mr Shalit, a 19-year-old tank gunner in a raid in which two other soldiers and two of the attackers were killed.
Hours before the militants' communique, Israeli tanks and armoured bulldozers pushed into the northern Gaza Strip in what an Israeli military source described as a "pinpoint operation" to locate tunnels and explosives near the border fence. "This is not a massive ground entrance," the source said.
A Palestinian gunman in the area was killed by an Israeli aircraft, witnesses said. The Israeli military said it opened fire on two armed men, hitting one of them.
A Reuters reporter in the northern Gaza town of Beit Hanoun said the bulldozers appeared to be preparing the ground for a possible wider incursion into the area, used by militants as a launch site for daily rocket attacks against southern Israel.