It was the briefest of reprieves. Within minutes of the three-hour ceasefire between Israel and Hamas ending at 4pm, gunfire was heard around the edges of Gaza City. Less than half an hour later, an Israeli war plane blew up a car killing a Palestinian man and his three children, medics said.

For a few hours though, shell-shocked and hungry Palestinians scrambled into the streets to buy whatever they could get their hands on, as tentative hopes for a more lasting ceasefire grew.

Israel said it “welcomed” an Egyptian proposal for a truce with Hamas, the Islamist rulers of Gaza, yet its security cabinet voted nonetheless to push ahead with its deadly ground offensive while it hammered out the details with international envoys.

It also gave the army permission to step up the operation to a full-scale invasion of Gaza’s surrounded cities, but said this did not necessarily mean the urban combat stage of the war was imminent. “They have to know this has been approved and it’s a threat hanging over their heads,” an Israeli official said.

Even during the truce period, there was sporadic fighting in the northern Gaza Strip, where some of the deadliest battles and air strikes of the campaign have taken place.

Aid agencies said the short pause in the war was not nearly enough to feed hundreds of thousands of people who depend upon subsidized rations in Gaza.

“A three-hour ceasefire to go and see whether your mum and dad are alive is not a humanitarian corridor,” said one western NGO worker. “It’s a tea break for the soldiers.”

“If it can be three hours, then why not four or five?” said John Ging, head of the United Nations refugee agency in Gaza. “Who for a minute thinks we can take care of one and half million people in three hours, when before it was a full time job for 10,000 people?”

Robin Lodge of the World Food Programme said that with phone networks barely working, it had been difficult to coordinate the sudden rush to get the food to distribution centres, and even harder to convince terrified staff it was actually safe enough for them to risk going outside after 12 days of carnage that has left close to 700 people dead.

Aid agencies were trying to rush in high energy biscuits and ready to eat food, since Gazans have no electricity or cooking fuel to prepare their meals.

UN officials said that before the truce, an Israeli tank had fired a shell within 70 metres of an aid convoy, despite prior coordination with the military. The World Food Programme had two drivers killed on duty the day before.

Both Israel and Hamas said they would study the latest ceasefire proposal worked out by Hosni Mubarak, the Egyptian president, and Nicolas Sarkozy, his French counterpart, who has been carrying out intense shuttle diplomacy across the region.

The initiative gained momentum after Israeli shells landed outside a UN-run school in Jabaliya, in northern Gaza, which had been turned into a shelter for hundreds of people displaced by the fighting.

As people flocked into the streets today to stock up on basic supplies, relatives and mourners lined up the 43 corpses from the strike outside the school, where the survivors still live. Just fifty yards from the solemn gathering, frantic families jostled around a flour truck to stock up before the fighting resumed.

One mourner described how he had been carrying the body of a badly wounded man when he saw the body of his nine-year-old son lying among the dead.

“I froze, I didn’t know what to do with the dying man in my arms and my son lying dead in front of me,” said the bereaved father. Another rescuer took the victims from his arms. The man died anyway.

Israel said it was returning fire from a Hamas mortar team, but the United Nations said there were no militants in the area and called for an independent investigation.

A young mother living in the shelter without blankets or heating became hysterical with rage at the Israeli claim. Pointing at her two sickly infant daughters, she howled, “This one was firing mortars and this one was shooting rockets, and they deserve to die!”

If Israel does opt for a further escalation, the death toll – already hovering at 700 – is likely to skyrocket, with Israel also expected to suffer serious losses.

Ehud Barak, the Israeli defence minister, is said to be reluctant to order his forces into Gaza’s massively overcrowded cities, but the decision by the cabinet not to halt the offensive implies that Israel does not believe it has achieved its goal of severely depleting Hamas ability to fire rockets, or prevent it from re-arming through smuggling tunnels.

But pressure was mounting on it to wind up its campaign, even from the Bush administration, which leaves office in less than two weeks after seeing its promises of a peace deal by the end of its terms utterly shattered.

"We are supportive of the Mubarak initiative ... we are saying (to the Israelis) that it is an effort worth working on," an aide to Condoleezza Rice, the US secretary of state, said.

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