Militant Islamic group Hamas has won an overwhelming victory in local elections in the Gaza Strip, in a setback for the Fatah party of Palestinian leader Mahmoud Abbas.

The results came as Israel announced it was scaling down offensive operations in the area after 2,000 armed Palestinians were deployed in the south of the territory with orders to halt rocket attacks.

Hamas, which was competing for the first time in elections in the area, won 77 out of 118 seats and now controls seven out of the 10 towns involved in the poll.

Fatah won 26 seats, independents took 14 and the radical Popular Front won one seat. The overall turnout was 85 per cent. Twenty of the 118 winners were women.

Residents appeared to have voted on local issues and expressed their anger over corruption in the Fatah-dominated Palestinian Authority.

Ian MacKinnon, Times Jerusalem correspondent, said the results were more of a setback for Fatah than for Mr Abbas, although they would strengthen Hamas's hand in any negotiations on the ceasefire that Mr Abbas is trying to secure.

MacKinnon said: "Analysts seem to think that Abbas was elected on a personal vote rather than because he represented Fatah.

"The municiple authorities are about services like water, electricity and roads. People were not happy with the services they were getting from Fatah. They see it as corrupt and nepotistic.

"Hamas is seen as both clean and reasonably efficient, particularly with its welfare programmes, and it's seen as being at the forefront of the armed resistance to Israel. Abbas will now have to give Hamas some greater weight as he tries to move forward and reach some kind of deal with the Israelis."

Mr Abbas has been trying to bring militants into the political system, recently winning a pledge from them to temporarily halt attacks on Israel.

Thousands of Hamas supporters took to the streets of Gaza to celebrate the victory, chanting: "Hamas is the real way for reform and rebuilding," waving green Hamas flags and handing out sweets.

Sami Abu Zuhri, a Hamas spokesman, said: "We consider this victory a victory of the Palestinian people. It’s not the victory of somebody against somebody, the competition was to serve our people’s interests."

The poll followed local elections in 26 West Bank towns and villages in which Hamas made a strong showing and took control of several towns away from Fatah.

The announcement of a scaling down of Israeli offensive actions in Gaza was made by army chief of staff Moshe Yaalon who also ordered that any operations targeting militants in the West Bank would have to be approved by him personally.

He said "Pro-active Israeli Defence Force operations in the Gaza Strip will cease in the areas in which Palestinian security forces have redeployed."

Mohammed Dahlan, the powerful former head of Palestinian security in Gaza, said the Israeli announcement was "an encouraging measure which should facilitate the conclusion of a ceasefire agreement".

The Israeli order was issued several hours after around 2,000 police and members of the national security force took up positions at bases and checkpoints from the town of Deir el-Balah in the centre of the territory down to the flashpoint Rafah border crossing into Egypt.

Militant groups such as Hamas have previously fired rockets and mortars on a near daily basis at the Gush Khatif settlement bloc where the vast majority of the 8,000 Jewish residents of Gaza live.

However a relative calm has settled in the Gaza Strip in the past week since Mr Abbas secured an unofficial agreement for a cooling down period from the factions. Similar numbers of Palestinian security forces have been deployed in the northern Gaza Strip for the past week, also under orders to prevent attacks.

Last night Israeli Prime Minister Ariel Sharon said: "I think that an historic breakthrough is possible in our relations with the Palestinians. I want to underline that we are detecting encouraging signs but these things must still be verified."

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