Israeli troops and Hamas fighters fought fierce battles on the streets of Gaza City today as Mahmoud Abbas, the Palestinian President, accused Israel of trying to “wipe out” his people.

The most relentless clashes of the 18-day conflict erupted when Israeli special forces, backed by tanks and air strikes, pushed into several neighbourhoods in the south of Gaza's main city early this morning.

Palestinian fighters fired back with roadside bombs, mortars and anti-tank rockets. Explosions, tank shell thuds and the rattle of gunfire kept terrified residents who had not yet fled the area awake all through the night.

“We are tightening the encirclement of the city,” Brigadier General Eyal Eisenbert, the commander of the operation, told a group of reporters briefly allowed in with the troops. “We are not static, we are careful to be constantly on the move."

Diplomatic efforts to reach a ceasefire hit a snag when Hamas said that it had "substantial observations" to make on an initiative proposed by Egypt for an immediate ceasefire to allow humanitarian aid back into Gaza. A senior Hamas official said that any ceasefire deal would have to address the group's demands for an Israeli withdrawal from the Gaza Strip.

Meanwhile, Mr Abbas, who has been accused of not speaking out strongly enough against the Israeli offensive, made perhaps his strongest statement on the conflict.

“This is the 18th day of the Israeli aggression against our people, which has become more ferocious each day as the number of victims rises,” he said in Ramallah at the opening of a meeting of the executive committee of the Palestine Liberation Organisation. “Israel is keeping up this aggression to wipe out our people over there."

Today's clashes came as the UN Security Council prepares to meet again on the crisis, after both Israel and Hamas ignored last week’s resolution calling for a halt to the fighting. There has been widespread speculation that Israel's leadership may soon approve a massive expansion of the offensive - a so-called "third phase" - despite talks in Egypt on ending the conflict.

Witnesses said that the Israeli tanks retreated shortly after dawn from the neighbourhoods of Tal al-Hawa and Sheikh Ajlin, but troops and armour remained camped in the outlying neighbourhood of Zeitun. Dozens of houses were damaged and some left in rubble by Israeli armour in the hours following the fighting.

At least 10 people were killed in today's clashes, medics said, while the army reported that one Israeli officer was critically wounded. Israeli warplanes pounded the densely-populated coastal strip with more than 60 air strikes overnight, targetting rocket launching sites, weapons storage facilities, Hamas outposts and smuggling tunnels on Gaza’s border with Egypt, the army said.

Hamas and its allies sent four rockets and mortar rounds into Israel, with the projectiles not causing any injuries. The Islamists vowed they would emerge victorious, but said they were ready to examine truce initiatives.

“We are approaching victory,” Ismail Haniya, the Hamas leader, vowed in a rare television interview, adding that the Islamists were ready to “examine in a positive manner any initiative which can put an end to this aggression and the blood of our children being shed".

The Gaza conflict also came up in Washington at the Senate committee hearing into Hillary Clinton's nomination to succeed Condoleezza Rice at the State Department.

Mrs Clinton's future boss, Barack Obama, has steadily refused to get embroiled in the conflict and the New York senator gave away little more.

“The President-elect and I understand and are deeply sympathetic to Israel’s desire to defend itself under the current conditions, and to be free of shelling by Hamas rockets,” Mrs Clinton said.

“However, we have also been reminded of the tragic humanitarian costs of conflict in the Middle East and pained by the suffering of Palestinian and Israeli civilians. We will exert every effort to support the work of Israelis and Palestinians who seek that result."

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