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Israel said on Tuesday its stance on refusing to negotiate with militants holding a kidnapped soldier had not changed after a deadline set by the armed groups for Israel to free Palestinian prisoners passed.

The ultimatum set by Palestinian militants holding Corporal Gilad Shalit in the Gaza Strip expired at 6 A.M. Tuesday.

Militants holding Shalit demanded Israel release some 1,000 jailed Palestinians by daybreak but failed to say what measures they would take if their demands were not met.

"Discussion is closed," said Abu al-Muthana, spokesman for the Islamic Army in the Gaza Strip. "Whether he will be killed or not killed, we will not disclose any information about the fate of the soldier."

There was no immediate comment from the other two groups that were involved in kidnapping Shalit on June 25.

The Islamic Army is the least well known of the groups. The others are the armed wing of the governing Hamas Islamist group and the Popular Resistance Committees.

Abu al-Muthana said he expected a joint statement later on Tuesday.

"Nothing has changed from our standpoint," Justice Minister Haim Ramon said on Army Radio.

"The right thing is not to give a prize to terror, not to give in to terror, but the opposite."

Meanwhile, the London-based Arabic newspaper, Al Hayat, reported Israel was in the process of negotiating a deal with Gaza militants in return for Shalit's safe return, Israel Radio reported.

The report contradicted earlier statements made by Prime Minister Ehud Olmert and Defense Minister Amir Peretz who vowed not to give in to "extortion."

Hours before the ultimatum expired, Israel Air Force warplanes continued to strike targets in the Gaza Strip, launching missiles at an Islamic University building in Gaza City.

Black smoke rose from the building, set on fire in the attack. There was no word of casualties.

The university is considered a Hamas stronghold. The building, where the Hamas-dominated student council meets, was heavily damaged.

On Monday, Olmert ruled out any possibility of dialogue with Shalit's captors based on their demands to release prisoners.

"There will be no negotiations to release prisoners," the Prime Minister's Bureau said in a statement. "The government of Israel will not give in to extortion by the Palestinian Authority and the Hamas government, which are headed by murderous terror organizations. The Palestinian Authority bears full responsibility for the welfare of Gilad Shalit and for returning him to Israel in good condition."

Olmert canceled his participation in a meeting of Kadima Knesset members but did attend the Knesset no-confidence vote. His schedule on Tuesday is a normal one, with an afternoon speech to a Negev business conference in Be'er Sheva and an evening at the home of the American ambassador in Herzliya to mark American Independence Day.

A military source said last night that Israel was waiting for developments on Tuesday, after the ultimatum deadline, which expires at 6:00 A.M. The abductors threatened that "the soldier's case will be closed" if their demand to release 1,000 Palestinian prisoners held in Israel was not met by then, without specifying what they intended to do.

Israeli military sources said on Monday they found the ultimatum announcement issued by the three militant groups behind the kidnapping difficult to interpret because of its vague wording. The common wisdom in military circles here is that the ultimatum is a delaying tactic and hurting Shalit would serve neither their interests nor that of Hamas, because Israel would likely respond harshly.

Olmert's rejection of the ultimatum was based on the unequivocal recommendation of the military establishment that no prisoners be released and the conclusion that the ultimatum did not constitute a "serious" offer.

Mediators in the case believe that Shalit's captors do not intend to harm him, nor to sever contact, despite the ultimatum they posed. The mediators ventured that harming the hostage or cutting off contact would be detrimental to the kidnappers' interests. The sources emphasized they intended to continue the mediation efforts and expressed hope that the meeting in Jeddah between Egyptian President Hosni Mubarak and King Abdullah of Saudi Arabia would help resolve the crisis.

Palestinian Authority officials say the ultimatum is designed to pressure the Israeli government to meet the demands for releasing Palestinian prisoners and to encourage Israeli public opinion to pressure the government. Another assessment widespread among Palestinian security services in Gaza is that the kidnappers will sever contact with the negotiating team and "disappear" for a time, as did Ron Arad's captors. However, the kidnappers' intentions remain unclear. Journalists in Gaza suggested that issuing the ultimatum might indicate some complication in Shalit's condition.

Around 9 A.M. on Monday, the three groups that assumed responsibility for the abduction and attack at Kerem Shalom issued an ultimatum: "In view of the enemy's obstinance in toppling all humanitarian values and insistance on military measures and continued aggression, we are posing an ultimatum to the Zionist enemy, by Tuesday at 6 A.M., July 4. Unless the enemy responds favorably to our humane demands that appeared in the previous leaflet regarding the terms of action in the case of the missing soldier and begins implementing the first item, we will consider the current case closed due to the stubbornness of the enemy leadership. And afterward, the enemy will bear full responsibility for the future consequences."