The Popular Resistance Committees, one of three groups that seized the soldier in a cross-border raid nine days ago, set a deadline of 6am today for Israel to start releasing 1,500 Palestinian prisoners. Israel would “bear all the consequences” if it failed to comply, the militants said.

Refusing to elaborate on the euphemism, Abu Mujahid, a Popular Resistance spokesman in Gaza City, said that during the past week the groups, which include the military wing of the ruling Hamas movement, had left open the door for mediation but “the Israeli enemy” had closed off all diplomatic solutions.

The office of Ehud Olmert, the Israeli Prime Minister, rejected the demand, saying it would not give in to extortion by the Palestinian Authority or the Hamas Government, which it said was headed by murderous terrorist organisations. “The authority bears full responsibility for the welfare of Gilad Shalit and for returning him safe to Israel,” it said in a statement. “There will be no negotiations to release prisoners.”

However, Lieutenant-General Dan Halutz, the Israeli army’s chief of staff, did not rule out negotiations when he left Corporal Shalit’s family home in northern Israel: “We . . . will consider all that there is to be considered, then reach conclusions and act on them.”

Amid hints of differences between the groups holding Corporal Shalit, a minister in the Hamas-led government yesterday called on the militants to spare his life, even though Hamas’s military wing — one of the three groups holding the soldier — had backed the ultimatum.

“The Government issues an appeal to the resistance groups . . . for the soldier to be kept alive and well-treated,” Yussef Rizqa, the Information Minister, said. “The Hamas-led Government denies involvement in the abduction, although Hamas’s military wing was one of the groups that took part.”

Israel has accused Hamas’s exiled political leadership of running the operation, chiefly the group’s supreme leader, Khaled Meshaal, in Damascus.

He and other Hamas leaders in Syria and Lebanon have gone to ground after Israeli threats to kill them.

The European Union last night urged Israel to show restraint in its military campaign to secure Corporal Shalit’s release, and to free eight Hamas Cabinet ministers and 26 MPs it arrested in the West Bank last week. The White House echoed the calls for the soldier to be freed.

As yesterday’s ultimatum was issued Israeli troops stepped up the pressure on Gaza by moving into northern Beit Hanoun. Residents said that undercover units took over houses overlooking the town from the east.

Parents kept children away from the area and glanced nervously at Israeli spotter drones overhead, although there was no sign of Israeli soldiers on rooftops or at windows.

The fields around Beit Hanoun are used by Palestinian militants to fire rockets at Israeli border towns.

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