Israel began sending army reservists into Gaza last night in a further escalation of its war against Hamas.

The move came hours after Ehud Olmert, the Prime Minister, had raised hopes that the offensive could be approaching its end when he told his Cabinet that Israel was “nearing the goals it set” when it began Operation Cast Lead 17 days ago.

But Mr Olmert signalled that there would be a few more days of fighting yet when he added: “We must not, at the last minute, lose what has been achieved in an unprecedented national effort that restored the spirit of unity to the nation . . . The Israeli public, especially the residents of the south, have the patience and willingness – so does the Government.”

Tens of thousands of reservists were mobilised at the beginning of the conflict and have been undergoing intensive training. Over the weekend, Israeli military commanders had pressed political leaders to send them into Gaza, to take the battle into the densely populated urban areas of the Gaza Strip. Major-General Yoav Galant, commander of Israeli forces in Gaza, argued that the Israeli military had a “once in a generation” opportunity to end the threat from Hamas and ensure Israel’s security in the south for many years.

However, it was unclear last night how many reservists were being deployed, or whether this marked the start of the “third phase” of the conflict, after the initial bombardment and the deployment of regular troops to surround the urban areas.

To enter the narrow streets and alleys of Gaza City would almost certainly push up the Israeli death toll. Hamas would be fighting on ground that it knows intimately, and where it has prepared a lethal labyrinth of tunnels, boobytraps and other “surprises” for Israelis.

Earlier yesterday Israeli troops, backed by helicopter gunships, had engaged in some of the fiercest fighting yet as they pushed deeper into Gaza City and were confronted by Hamas fighters with mortars and rocket-propelled grenades. Israel said its forces attacked a mosque used by Hamas to store weapons and shelter militants. Thick smoke could be seen rising from neighbourhoods in the south and east of the city as terrified inhabitants huddled inside their homes.

“We’re safe, but we don’t know for how long,” said Khamis Alawi, 44, who took refuge in his kitchen overnight with his wife and six children. He said bullets riddled his walls and several came in through the windows.

Osama Damo, who works for Save the Children in Gaza, sheltered in a flat with 16 relatives. “Last night ground forces came within metres of our flat. All 17 of us spent the whole night in the corridor. The children were screaming and screaming for hours,” she said. “In all of Gaza City people are in the streets. They are fleeing, but with nowhere to go. Civilians are trapped in Gaza, receiving leaflets telling them to leave their homes to avoid attacks but there is no safe place to shelter.”

More than 30 Palestinians were reported to have been killed, including four members of one family, as the death toll approach 900, more than half of them civilians. Thirteen Israelis have died. Despite the pounding it has taken, Hamas continues to fire several rockets into Israel each day.

Mr Olmert and his security Cabinet will be keen to inflict maximum damage on Hamas in the next few days, because they face growing international pressure to end the bloodshed.

The UN Security Council demanded an immediate ceasefire last Friday, prompting Matan Vilnai, the Deputy Defence Minister, to admit yesterday: “The decision of the Security Council doesn’t give us much leeway. It would seem that we are close to ending the ground operation and ending the operation altogether.”

Tony Blair, the UN special envoy to the Middle East, met Mr Olmert yesterday and said that there was an urgent need to end the fighting because “every day this action continues there are more people that die”.

Ban Ki Moon, the UN Secretary-General, will arrive in the region this week.

Many commentators believe that Israel faces a de facto deadline of January 20 – the day of Barack Obama’s inauguration as US President. Mr Obama yesterday promised to make the Middle East a priority for his Administration. He said he was building a diplomatic team so that “on Day One we have the best possible people who are going to be immediately engaged in the Middle East peace process as a whole”.

Mr Olmert has always been vague about Israel’s ultimate goals beyond talking of the need to “change the security reality in the south”. But its minimum demands are that Hamas ceases firing rockets into Israel, and Gaza’s southern border with Egypt is sealed so Hamas can no longer smuggle in weapons. Amos Gilad, a senior Israeli defence official, will travel to Cairo today for further talks on how that might be achieved.

Israeli defence officials admitted that a wayward Israeli shell might have been responsible for one of the deadliest incidents of the war – the deaths of 39 Palestinians killed when sheltering in a UNrun school.

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