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Israeli soldiers reached the suburbs of Gaza City for the first time in the conflict Tuesday, after Prime Minister Ehud Olmert warned Hamas of his country's "iron fist."

Early in the day, troops entered neighbourhoods east and south of the city, backed by helicopters and artillery. But Hamas refused to back down. The group's leader, Ismail Haniyeh, said militants were "closer to victory."

Gaza City has a population of about 400,000 people, in one of the most densely-populated areas on the planet. A resident in the Tel Hawwa neighbourhood, south of the city, said he saw at least two apartment buildings on fire.

"The gates of hell have opened," he told The Associated Press by phone. "God help us."

On Monday, Israel was trying to decide whether to escalate the conflict to a new level. Olmert travelled to Ashkelon, the Israeli town bordering Gaza that has been the target of rocket fire. He told residents the offensive will end when the rocket fire ceases.

"Anything else will be met with the Israeli people's iron fist," Olmert said. "We will continue as long as necessary to remove this threat from our heads."

Later he tempered his remarks, noting that diplomatic efforts were continuing.

"I really hope that the efforts we are making with the Egyptians these days will ripen to a result that will enable us to end the fighting," Olmert said.

Despite the Israeli chokehold on the region, at least 15 Hamas rockets were launched from within Gaza on Monday, one striking a house in Ashkelon.

"As we are in the middle of this crisis, we tell our people we, God willing, are closer to victory," said Haniyeh on Al Aqsa television. "All the blood that is being shed will not go to waste."

Truce talks

Former British prime minister Tony Blair, the United Nation's envoy to the region, was in Cairo, Egypt, on Monday morning to discuss brokering a possible ceasefire between the two sides. Israel says it will only agree to a ceasefire that includes international guarantees that would prevent Hamas from smuggling weapons into Gaza through the Egyptian border.

Hamas has countered that it will not consider a ceasefire until Israel has halted its attacks and pulled out of Gaza. The militants have also demanded that all border crossings be re-opened.

Israeli Foreign Minister Tzipi Livni said Hamas is learning a tough lesson.

"Israel is a country that reacts vigorously when its citizens are fired up, which is a good thing," Livni told Israel Radio on Monday.

"That is something that Hamas now understands and that is how we are going to react in the future, if they so much as dare fire one missile at Israel."

CTV's Mideast Bureau Chief Janis Mackey Frayer said new Israeli reserve troops will likely bolster troop presence in the southern parts of the Gaza Strip, as Israel ramps up for a final push against Hamas.

"Israel is very intent on delivering a final, punishing blow to Hamas," Mackey Frayer told Â鶹ӰÊÓnet.

"Already it's signalling to people that it's close to reaching its military objectives. It's suggesting that maybe the end of this offensive is in sight."

However, the Gaza border with Egypt, known for the network of tunnels that allow Hamas to smuggle in weapons and ammunition, remains a major concern for Israel, Mackey Frayer said.

The fighting, which began on Dec. 27, has killed roughly 910 Palestinians -- with some estimates putting the civilian death toll at half the total. Thirteen Israelis, including 10 soldiers, have been killed.

The Israeli offensive has also left Gaza in tatters -- with thousands displaced from their homes and struggling to access medical treatment, food or water.