Military Intelligence Chief Amos Yadlin said Sunday that while Israel's offensive on the Gaza Strip had indeed deterred Hamas, other radical groups in the coastal territory were still looking to escalate hostilities.

"Two weeks following the cease-fire, militants from groups other than Hamas are challenging it and carrying out attacks aimed at renewing escalation," Yadlin told cabinet ministers.

"Hamas is deterred and is respecting the cease-fire, but is not preventing the attacks of others. Hamas is internalizing the gravity of the blow it received," Yadlin said.

"The group has begun to evaluate its strategic mistakes and operational failures. Hamas is fighting for approval on the streets of Gaza and is trying to improve its image in the eyes of the public by stealing humanitarian aid and rehabilitation funds," he added.

Hamas: Olmert seeking to scuttle Gaza truce deal

Hamas spokesman Taher Nunu on Sunday accused Prime Minister Ehud Olmert of trying to scuttle an Egyptian-brokered truce in Gaza. He was referring to a threat by Olmert of a "fierce and disproportionate" response if Gaza militants continued to launch rocket attacks against southern Israel.

"This is an attempt to find a false excuse to escalate the aggression against the Palestinians, to destroy the Egyptian efforts to improve the calm, and to use pressure against the Palestinian people to accept Israeli conditions in those talks," Sky News quoted Nunu as saying.

Olmert's statement at the start of Sunday's cabinet meeting came as Palestinian militants fired at least four Qassam rockets and four mortar shells from the Gaza Strip into the western Negev on Sunday, with one rocket striking in between two kindergartens.

Nunu was quoted as adding: "We condemn the statements by Olmert and others today threatening the Gaza Strip."

During the cabinet meeting, Olmert also vowed that Israel would not agree to return to the old rules of engagement in Gaza.

"We will act according to new rules that ensure we will not be dragged into an incessant shootout that prevents us from living normal lives in the south," said the prime minister.

There have been sporadic rocket attacks by militants on southern Israeli communities and several Israeli air strikes in the Gaza Strip since a truce came into effect on January 18 following a 22-day Israeli offensive against Hamas in the territory.

Hamas has not taken responsibility for any of the new attacks, which have been claimed by smaller militant groups. But Israel says it holds Hamas, which has ruled Gaza since seizing power in June 2007, responsible for all attacks emanating from Gaza.

Olmert added that the intensification of rocket fire in the last few days has left Israel with no choice but to react in a manner that makes its stance on the rocket fire clear.

"I have asked the Defense Minister to instruct the IDF to prepare for the Israeli response that is required under these circumstances. The response will be given at the time, place and avenue that we choose," he said.

More than 1,300 Palestinians, including at least 700 civilians, were killed during the 22-day offensive, according to the Hamas-run Health Ministry in Gaza. 10 Israeli soldiers and three civilians were also killed.

Israel: Hamas responsible for civilian deaths in Gaza

Israel said Hamas militants bore responsibility for civilian deaths in Gaza by operating inside its towns and refugee camps.

Foreign Minister Tzipi Livni said there was no need to wait for a response. "The reaction must be strong and immediate as that is the only way that Hamas will understand the equation has changed," she said.

Defense Minister Ehud Barak said the security establishment had been instructed to formulate a response. "Hamas received a heavy blow and if needed will receive another one," he warned.