Israeli armored vehicles carrying soldiers from the Golani Brigades leave the northern Gaza Strip to a base near Kibbutz Zikim, Israel

Israel has scaled back its military offensive in the northern Gaza Strip, as Palestinians call for a cease-fire. More than 40 Palestinians, mostly militants, and an Israeli soldier have been killed since Israeli forces moved into Gaza following the kidnapping of a soldier two weeks ago.

Israeli tanks rumbled as the army pulled back its forces from northern Gaza, after two days of bloody street battles with Palestinian gunmen. The area has been used as a launching ground for Palestinians firing rockets at Israeli border communities.

However, Israeli tanks and troops are still deployed in southern Gaza, and military officials say the operation is not over. The aim of the offensive is to halt weeks of rocket attacks, and win the freedom of the kidnapped Israeli soldier. The 19-year-old corporal was abducted at his army base two weeks ago by gunmen from the ruling Islamic militant group Hamas. 

Palestinians run past a burning tire to avoid Israeli sniper fire during an Israeli army incursion in Beit Lahiya, northern Gaza Strip, July 7, 2006.

The offensive has heaped pressure on Hamas, which was already reeling from international sanctions because of its refusal to renounce violence and recognize Israel.

In the first signal that the Hamas government is willing to compromise in the crisis, Palestinian Prime Minister Ismail Haniyeh called for a cease-fire.

"[The] Palestinian people also is interested to avoid the military attacks by encouraging the mediation, so, I think, we will find some way to find a compromise," said Hamas spokesman Ghazi Hamad.

The mediation he referred to is Egyptian efforts to broker a prisoner exchange - the captive soldier in exchange for Palestinian prisoners.

Israel rejected the truce offer, saying that, first, the soldier must be released. At the same time, government spokesman Mark Regev says, Israel is prepared.

"… as a goodwill gesture to Palestinian leadership, to consider prisoner releases, but there's a wealth of a difference between that and giving in to hostage blackmail. No one in the Israeli government wants to give in to hostage blackmail," said Mr. Regev.

Under the emerging deal brokered by Egypt, Palestinians would free the soldier and halt rocket attacks. Israel would end the offensive in Gaza, and later, release some Palestinian security prisoners.