* Israel to begin unilateral ceasefire at 2 a.m. (0000 GMT) * Hamas vows to fight on, and rocket fire has continued * U.S. calls for "durable and fully respected ceasefire" * Mubarak to host international Gaza summit on Sunday By Nidal al-Mughrabi GAZA, Jan 17 (Reuters) - Israel called off its three-week offensive in the Gaza Strip on Saturday, saying Hamas was "badly beaten", but the Islamist group vowed to fight on in a war that has killed 1,200 Palestinians in the coastal enclave. Within minutes of Prime Minister Ehud Olmert announcing that a unilateral ceasefire would start three hours later at 2 a.m. (0000 GMT) on Sunday, several missiles struck southern Israel. "Conditions have been created whereby the goals set at the launch of the operation have been more than fully achieved," Olmert said in a televised address from army headquarters. He said Hamas was "badly beaten" and its ability to fire rockets at southern Israeli towns had been severely limited. Olmert also cited what he called internationally-backed understandings with Egypt, the Gaza Strip's southern neighbour, on preventing Hamas from rearming through smuggling tunnels. After 22 days of war that has killed hundreds of civilians, many of Gaza's 1.5 million people are desperate for a respite. But Hamas officials said that until Israeli forces withdrew from the territory and agreed to end a long blockade that has crippled Gaza's economy, they would not hold their fire. "A unilateral ceasefire does not mean ending the aggression and ending the siege," spokesman Fawzi Barhoum said. "These constitute acts of war so this won't mean an end to resistance." Olmert said the troops would remain in place and hit back if the Palestinians tried to fight on: "If our enemies decide the blows they've been dealt are not sufficient and they are interested in continuing the fight, Israel will be prepared for such and feel free to continue to react with force." U.N. Secretary General Ban Ki-moon hailed the ceasefire but also urged Israel to pull out its forces from Gaza rapidly. U.S. Secretary of State Condoleezza Rice, who had spoken up for what Israel saw as its right to self-defence despite the civilian casualties, said she hoped for a durable ceasefire and a long-term settlement for the problems of Gaza. Rice and President George W. Bush are stepping down and many analysts believe Israel, eager for smooth relations from the outset with the new president, has been keen to end the fighting before Barack Obama takes over the White House on Tuesday. EGYPTIAN DIPLOMACY Olmert said the ceasefire plan responded to an appeal from Egyptian President Hosni Mubarak, who has been at the spearhead of international diplomatic efforts to end the conflict. But Olmert, who will be stepping down soon after a Feb. 10 election, chose to shun a negotiated accord with Hamas and to simply hold fire, denying the Islamists, who are committed to the destruction of the Jewish state, the deal they sought on easing Israel's punitive blockade on the territory. Hamas's Barhoum called it "an attempt to pre-empt the Egyptian efforts ... that seek to achieve a withdrawal of the occupying forces, an end to the siege and a ceasefire". Olmert indicated he expected an end to combat: "The campaign has proven Israel's power and strengthened its deterrence." He also said he would work with Mubarak to tighten security on Gaza's short Egyptian border -- a key goal of Israel. Despite the lack of any clear deal at this stage, Mubarak invited a pack of European leaders to a short-notice summit on Sunday that is meant to come up with ways to bolster the truce in Gaza and to ease the plight of the civilian population crammed into the 45-km (28-mile) sliver of coast. Most of those, their nerves shredded and sleepless with fear and bereavement, just want the war to be over: "We do not care how, we want a ceasefire. We want to go back to our homes. Our children need to go back to sleep in their beds," said Ali Hassan, 34 and a father of five, in the city of Gaza. CASUALTIES Figures from an independent Palestinian human rights group put the number of civilians killed in three weeks of aerial bombardment and a two-week-long ground offensive backed by tanks and artillery at over 700. Hundreds of fighters have also died. Ten Israeli soldiers and three civilians have been killed. Gaza's Hamas-run Health Ministry said some 5,300 wounded had been treated, many at sanctions-hit and chaotic hospitals. It put the death toll to Saturday at 1,206, including 410 children. Of these, two young boys were killed early on Saturday at a United Nations-run school where hundreds of people had taken refuge. U.N. officials called for war crimes inquiries and Secretary General Ban called it an "outrageous attack". Israel accuses Hamas fighters of hiding among civilians and says its troops do all they can to avoid hitting non-combatants in a territory where half the population is aged under 18. Olmert said he apologised for the suffering of the innocent. Israel launched air strikes on the Gaza Strip on Dec. 27 and ground troops pushed into the coastal enclave a week later, saying its main war aim was an end to rocket fire that had killed 18 people in Israel over the previous eight years. Without an accord with Hamas, diplomats said they feared Israel would let only a trickle of goods into Gaza, hampering reconstruction and creating more hardship for its people. Mubarak will host Palestinian President Mahmoud Abbas and U.N. chief Ban in Sharm el-Sheikh on Sunday, along with the leaders of France, Britain, Germany, Turkey, Italy and Spain. The road ahead for the Obama administration in promoting a peace settlement that has eluded Israelis and Palestinians for the 60 years since Israel was established remains bumpy. Hamas, which won a parliamentary election in 2006 and seized Gaza from Abbas's forces a year later, is shunned by the West but remains a popular force in both Gaza and the West Bank. It is unclear what effect this month's war will have on the division between the Palestinians factions. Without an end to the bitter rift between Hamas and Abbas, a deal with Israel on establishing a Palestinian state still seems distant to many. (Writing by Alastair Macdonald; Additional reporting by Adam Entous, Ari Rabinovitch, Jeffrey Heller, Luke Baker and Ori Lewis in Jerusalem, Alaa Shahine in Cairo, and Yara Bayoumy in Beirut; Editing by Dominic Evans)
Israeli Prime Minister Ehud Olmert (R) sits next to Defence Minister Ehud Barak before issuing a statement at the end of a meeting of Israel's security cabinet in Tel Aviv January ...
Palestinian territories
