Israel has rejected a ceasefire offer from the Islamic militant group Hamas, which rules the Gaza Strip. At the same time, Israeli settlement construction is casting a shadow over new peace talks between Israel and the Palestinian Authority in the West Bank. Robert Berger reports from the VOA bureau in Jerusalem.

Prime Minister Ehud Olmert says Israel has no intention of halting anti-terror operations in Gaza, despite a truce offer from Hamas.

Mr. Olmert told the Cabinet that "what is happening in Gaza is a real war between the Israeli army and terrorist groups." And he said, "The war will continue."

A Palestinian man inspects the damage to a house destroyed in an Israeli army raid the day before, in the Maghazi refugee camp, central Gaza Strip, 21 Dec 2007

Hamas offered a truce last week, after Israeli air strikes took heavy casualties among Palestinian militants.

Mr. Olmert said Israel has no interest in holding negotiations with elements that refuse to accept the basic principles of the international community. He was referring to Hamas, which has rejected demands by the world powers to renounce violence and recognize Israel.

Hamas also appears to be divided between the military wing and the more pragmatic political wing of the movement, which offered the truce. Nizar Rayan, who has close ties to the military wing, said a ceasefire is unacceptable.

Rayan told Hamas Television that there would not be a truce until all of Palestine is liberated from the Jews.

Hamas seized control of Gaza six months ago, routing the forces of western-backed Palestinian President Mahmoud Abbas. He now heads a more moderate government in the West Bank, which resumed peace talks with Israel this month after a seven-year break.

But negotiations hit a glitch Sunday when Israel announced plans to build more than 700 new apartments in disputed East Jerusalem and the West Bank. The Palestinians accused Israel of sabotaging the talks, saying settlement construction violates the internationally-backed "Roadmap" peace plan. Israel says it reserves the right to build in neighborhoods that will remain under Israeli control in any future peace agreement.