Diplomatic efforts to cement a ceasefire between Israel and Gaza appeared to be on the verge of success, despite a heavy day of fighting that saw a barrage of rocket attacks and airstrikes.

U.S. Secretary of State Hillary Rodham Clinton met with Israeli Prime Minister Benjamin Netanyahu, pushing for a peaceful end to the week-long conflict that would promote regional stability.

"The goal must be a durable outcome that promotes regional stability and advances the security and legitimate aspirations of Israelis and Palestinians alike," she said.

Netanyahu said he hoped for a diplomatic solution but warned he would continue to take military action against Hamas if necessary.

"If a long-term solution can be put in place through diplomatic means, then Israel would be a willing partner to such a solution," he said. "But if stronger military action proves necessary to stop the constant barrage of rockets, Israel will not hesitate to do what is necessary to defend our people."

In the latest surge of violence, an 18-year-old Israeli soldier died in a rocket attack on southern Israel, along with a contractor. Meanwhile, an Israeli air strike killed two Palestinian brothers on a motorcycle in Gaza.

After seven days and nearly 1,500 airstrikes, the Palestinian death toll is at more than 130 people, including at least 54 civilians. Gaza health officials say of the 840 wounded, 225 are children.

In Israel, five people have been killed and dozens wounded by the more than 1,000 rockets fired from Gaza since the conflict intensified last week.

In Cairo, where truce negotiations are ongoing, senior Hamas official Moussa Abu Marzouk told The Associated Press that a ceasefire deal hasn't been struck yet, "but we are progressing and it will most likely be tonight."

Citing a senior official of the European Union's foreign service speaking on condition of anonymity, AP reports the cease-fire would include the cessation of Israeli airstrikes in Gaza, as well as an end to rocket attacks on Israel. The official said Gaza crossing points would be opened as well.

In his own comments to reporters, United Nations chief Ban Ki-moon said, until a deal can be agreed, he has urged Israel to "exercise maximum restraint."

"I strongly caution against a ground operation which will only result in further tragedy," he said, warning both sides in the conflict that further bloodshed would not "open the door to negotiations that could achieve the two-state solution necessary" to end the violence. After meeting Netanyahu, Ban was to travel to the West Bank for a sit-down with Palestinian President Mahmoud Abbas. He also planned to meet Egyptian President Mohammed Morsi on Wednesday.

Earlier Tuesday, Egypt's official MENA news agency reported that Morsi told journalists negotiations between Israeli and Hamas officials will yield "positive results," suggesting without elaboration that Israeli "aggression" would end soon.

Rocket targets Jerusalem

Israel has stood firm on its right to defend itself from attacks, including the latest rocket that targeted Jerusalem on Tuesday.

A Palestinian rocket -- the second aimed at the city since Israel stepped up its offensive last week -- landed harmlessly in an open area on the outskirts of Jerusalem. The rocket, which set off air-raid sirens throughout the city as it struck the same Gush Etzion settlement targeted last Friday, landed just ahead of the UN Secretary General's arrival in the city for his meeting with the Israeli PM.

Located nearly 80 kilometres from Gaza, an attack on Jerusalem is considered particularly significant as an example of Hamas' growing weapons capabilities, and its willingness to strike the home of Islam's third-holiest shrine, the Al-Aqsa mosque.

In other developments Tuesday:

  • An Israeli airstrike launched shortly after the rocket struck near Jerusalem destroyed a car in Gaza City. Five people were killed, and four others wounded. Their identities were not immediately known.
  • Earlier, Israeli aircraft attacked the headquarters of the bank established by senior Hamas officials to sidestep international sanctions. The inside of the bank was destroyed, and an unrelated business in the basement of the building was damaged.
  • In a sign the conflict is spilling from Gaza into the West Bank, hundreds of Palestinian protesters clashed with Israeli forces in the town of Jenin.
  • Separate clashes occurred in Ramallah as well, during the funeral for one of the dead.
  • Hamas TV station Al-Aqsa said two of its journalists were killed in an airstrike.
  • A rocket fired from Gaza struck a house in the central Israeli city of Rishon Letzion, damaging the building and injuring two people.
  • The Israeli Army reported its first casualty of this latest conflict, announcing that an 18-year-old soldier was killed in a rocket attack on southern Israel.

At the Al-Shifa hospital in the North Rimal district of Gaza Tuesday, London Daily Telegraph reporter Phoebe Greenwood said she's witnessed the aftermath of what she believes have been "bloodiest hours of the conflict so far."

Describing the parade of dead and wounded being brought to the hospital, she said, "It is very difficult to see how a cease-fire can emerge from the situation here. Unless what we're seeing now are the final hours of a conflict where both sides are trying as hard as they possibly can to get as many targets as they can before peace is called."

Hamas' call to arms

In a defiant statement underscoring the difficulties negotiators face in finding common ground, a man identified as Hamas' elusive military commander Mohammed Deif urged his fighters not to give up.

In a broadcast from an undisclosed location, Deif said Hamas "must invest all resources to uproot this aggressor from our land."

Deif had been Hamas' top military commander before he was seriously wounded in a 2003 airstrike. His role had been filled by Ahmed al-Jabari, the commander killed on the first day of Israel's intensified efforts to stop rocket fire from Gaza last week.

Because the United States considers Hamas a terrorist organization, Clinton and other American officials are prohibited from direct contact with its members. Instead, she must rely on third parties -- principally Egypt, Turkey and also Qatar -- for communication.

On the one hand, Israel wants some guarantee of security for the 3.5 million Israelis now within range of rockets fired from Gaza. That means an end to the daily barrage, and a means to prevent rearming.

Hamas, on the other hand, wants Israel to lift tight restrictions on trade and movement to and from the territory. Israel has not budged on the blockade since it was imposed after Hamas seized Gaza by force in 2007.

But Hamas is no longer in the politically isolated position it was then, given the burgeoning support from Qatar and Turkey, and the rise to power of the ideologically aligned Muslim Brotherhood in Egypt and Tunisia.

The conflicted intensified last week, when Israel responded to a resurgence of rockets fired from Gaza with missile strikes of its own, one of which killed al-Jabari.

After initially targeting rocket launchers and ammunition stores, over the weekend Israel began training its airstrikes on the homes of suspected Hamas activists.

With files from CTV Middle East Bureau Chief Janis Mackey Frayer and The Associated Press