They were in close quarters, and there were not many of them. If they fired, they could have been in serious danger if the Palestinians retaliated. There was not a lot of distance between them and the Palestinians, so I think it's more than simply they didn't want to use live fire. It might not have done them much good. It might have backfired in that particular case.
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Nine people killed, 26 wounded in Baghdad bombs, Iraqi police and medics say (Reuters)