A LARGE-SCALE military clash loomed in Gaza last night as Ehud Olmert, the Israeli Prime Minister, rejected demands to negotiate for the release of a captive soldier and his army prepared an operation to free the man.

Gaza militants who seized Corporal Gilad Shalit after a raid on Sunday had demanded the release of Palestinian women and children from Israeli jails in return for information about his whereabouts.

Mr Olmert quickly responded: “The question of freeing prisoners is in no way on the Israeli government agenda. There will be no negotiations, no bargaining, no agreements.”

He was speaking as Israel massed tanks on the border and said that the country was prepared to assassinate senior Palestinians, including the leaders of Hamas, the ruling party. An incursion to free the soldier would be by far the largest move into Gaza since the Israeli withdrawal a year ago.

The military wing of Hamas was one of three armed groups that claimed responsibility for the pre-dawn raid on Sunday, in which the 19-year-old dual French-Israeli citizen was captured. The raid was carried out by armed men who tunnelled from Rafah to Kerem Shalom, a military base just across the border. Two Israeli soldiers were killed as well as two militants.

Mr Olmert put the army on alert for a “comprehensive and protracted operation” unless the 19-year-old corporal was freed unconditionally.

Mr Olmert’s government urged Mahmoud Abbas, the Palestinian President, to secure the soldier’s freedom, holding him and the rest of the Palestinian Authority accountable.

“I gave the orders to our military commanders to prepare the army for a broad and ongoing military operation to strike the terrorist leaders and all those involved,” Mr Olmert said. “Let it be clear: we will reach everyone, no matter where they are, and they know it. There will be immunity for no one.”

Egyptian and Jordanian diplomats also working to bring about the release of Corporal Shalit, and Dan Gillerman, the Israeli Ambassador to the United Nations, demanded that President Abbas exercise all the pressure at his disposal.

“We expect Mahmoud Abbas to exert his authority,” Mr Gillerman told The Times. “He has the means and military capability to ensure the soldier’s safe return. Leaders in the region and the world realise this is a watershed. It’s the last chance for President Abbas to show he’s in charge.”

The demand for release of prisoners was made in a statement signed by Hamas’s military wing, the Saladin Brigade and the Army of Islam. The last two groups are offshoots of the Popular Resistance Committees, which has links to Hamas.

In Gaza, however, there was widespread support for the Kerem Shalom raid, even as the sealed-off coastal strip prepared for an Israeli attack.

The Hamas-led Government claims that it knew nothing of the Kerem Shalom raid in advance, saying that it was carried out by its military wing.

Challenged on whether that meant that it tacitly backed the raid or had lost control of its fighters, Ghazi Hamad, the government spokesman, said that it was hard to restrain angry people in an abnormal situation. “Gaza is surrounded by Israeli troops. Daily in Gaza there are massacres and murders and assassinations, so it is not easy to tell people you have to be be patient and polite. You expect a kind of reaction sometimes,” he told The Times. He also complained of international double standards: ignoring thousands of Palestinian prisoner in Israeli jails but protesting at the capture of one Israeli.

In Rafah, where the tunnel was burrowed from border greenhouses, families sent away their children and prepared for evacuation before the arrival of Israeli tanks, which have already destroyed the offending structures. But as they watched tanks, bulldozers and mechanical diggers rumbling just a mile away, Palestinians viewed the raid on Sunday as retaliation for recent Israeli helicopter raids that have killed 14 Palestinian civilians during rocket strikes aimed at militants in crowded areas.

Ahmed Attiyah, whose house is overlooked by an Israeli watchtower in Kerem Shalom, said that Gaza was so ground down by Israeli air attacks and border closures that it had nothing to lose by hitting back. “We were under Israeli threat any time, from their rockets and from their shelling,” he said. “We had no safety, so why not retaliate?” In a nearby hospital Baha Mehedin said that Palestinians wanted peace but were not prepared to sell their rights. “Hamas did something against soldiers, not citizens and not civilians, so I think everyone supports this,” the 56-year-old English teacher said.

Across the border the Israeli Government was under intense domestic pressure to hit Hamas. Mr Olmert has been criticised for failing to curb Palestinian rocket attacks into Israel, which have intensified in recent weeks.

Israel sought to curb them with artillery fire into the launching areas but halted the barrage after eight Palestinians were killed during a beach picnic — although the Israel Defence Forces insist that their shells were not responsible.

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