GAZA CITY, Gaza Strip — Israeli Prime Minister Ehud Olmert stood within Hamas rocket range Monday and warned Islamic militants that they face an "iron fist" unless they agree to Israeli terms for an end to war in the Gaza Strip.

Hamas showed no signs of wavering, however, with its leader, Ismail Haniyeh, saying the militants were "closer to victory."

Despite the tough words, Egypt said it was making slow progress in brokering a truce, and special Mideast envoy Tony Blair said elements were in place for a cease-fire.

As Olmert spoke in the Israeli city of Ashkelon, Israeli tanks, gunboats and warplanes hammered suspected hiding places of Hamas operatives who control the poor, densely populated territory just across the border.

After nightfall, flares and explosions lit up the sky over Gaza and heavy gunfire was heard in parts of the coastal territory of 1.4 million people.

Hamas fighters battled Israeli troops on the outskirts of Gaza City and launched 15 rockets at southern Israel.

Fighting picked up early Tuesday as Israeli forces, backed by artillery and naval shelling, advanced closer to Gaza City from the south, witnesses said.

Khader Mussa, 35, a resident of the area under attack, told The Associated Press by telephone that he saw two apartment buildings on fire. He said he was huddling in the basement of his building with 25 other people, including his pregnant wife and his parents. "The gates of hell have opened," he said. "God help us."

Gaza's Hamas prime minister insisted on an Israeli withdrawal from Gaza and the opening of blockaded border crossings as part of any truce.

"As we are in the middle of this crisis, we tell our people we, God willing, are closer to victory. All the blood that is being shed will not go to waste," Haniyeh said on Hamas' Al Aqsa television. But he said the group was also pursuing a diplomatic track to end the conflict that "will not close."

Haniyeh sat at a desk in a room with a Palestinian flag and a Quran in the background. His location was unclear; Israeli airstrikes have targeted militant chiefs, and most are in hiding.

The fighting began Dec. 27 and has killed more than 900 Palestinians, about half of them civilians, according to Palestinian medical officials. Thirteen Israelis, including 10 soldiers, have been killed.

As diplomats struggled for traction in truce efforts, Olmert said Israel would only end military operations if Hamas stops rocketing Israel, as it has done for years, and is unable to rearm after combat subsides.