But Israel insisted it would accept only the "unconditional" release of Cpl Shalit, seized during a raid on an army post just outside Gaza which killed two other Israeli soldiers last Sunday. Mark Regev, the foreign ministry spokesman, declared: "Prime Minister Ehud Olmert has reiterated that there will be no deals, that either Shalit will be released or we will act to bring about his release." Israel's response came as a member of the Hamas-controlled Palestinian government said in Ramallah that Cpl Shalit had been given medical treatment for wounds sustained during last week's raid on the Kerem Shalom border base and was in "stable" condition.

In the first apparently credible public account of the Corporal's condition, the deputy minister for prisoner affairs, Ziad Abu Ein, said that unidentified "mediators" had told him that he had sustained three wounds . . . "I guess shrapnel wounds". . . and adding: "He was treated by a Palestinian doctor.

He is fine now." He gave no further details, including when the treatment took place.

With no sign of an 11th hour breakthrough in the diplomatic efforts being led by senior Egyptian officials to secure Cpl Shalit's release, Mahmoud Abbas, the Palestinian president, called for "all parties" to find the "acceptable solution" which he acknowledged had eluded them so far.

With troops and tanks massed both on the border of northern Gaza and in the longclosed Gaza International Airport near the southernmost border town of Rafah, Israeli troops with around five tanks and bulldozers also yesterday afternoon moved across the border into the mainly empty Abasan area east of the southern town of Khan Yunis for the first time.

There were exchanges of fire between troops and Hamas gunmen and at least one Israeli bulldozer was hit by a rocket propelled grenade. A statement from Mr Abbas's office warned: "The next hours are critical, sensitive and serious, " and added that the President was still "exerting efforts to stop the Israeli aggression and avoid more disasters for the Palestinian people". In Beit Hanoun, where civilian residents were leafletted on Thursday to warn them to stay off the streets because of an impending military operation, two missiles struck early yesterday at the main entry road to the town in one of what the army said were seven overnight air raids on "access routes in the central and northern Gaza Strip used by terror organisations in their activities against Israel". Although the road to the town, outlying parts of which have in the past frequently been used to launch Qassam rockets across the border at the neighbouring Israeli town of Sderot, was still passable with difficulty, the attack had made a large crater in each lane.

Samir Abu Shakfa, 43, one of a local team of engineers repairing the main power cable to the town, which he said had been damaged in the same missile attack, said: "Let [the Israelis] do whatever they want to hit the people they are looking for. Let them hit the roads if they have to. But they should spare the infrastructure. How does it help them to hit the electricity? Life depends on it." As artillery shells continued to explode in fields and orchards to the east, he added, "We want to sleep peacefully in our homes. We don't want war." Israeli media reports suggested last week that the army had been expecting residents to start leaving Beit Hanoun, after the issuing of the leaflet, which warned the army planned to stay in Gaza until Cpl Shalit had been found and released, but also as long as it took to protect "the security of Israeli citizens". . . a reference to the goal of halting Qassam rocket launches.

But there was no sign of this yesterday, despite increasing edginess among the residents . . . increased by the artillery fire and continued "sonic booms" generated throughout Gaza by overflying F16 aircraft . . .

and a run on two petrol stations rationing their sales to one or two litres per customer after five days in which there have been no deliveries from the Israeli border depot of Nahal Oz.

Jawaher Dourraj, 24, who manages a pharmacy in the town, said: "It is a nightmare and we are afraid. But we will be patient and continue living." Ms Douraj said of Cpl Shalit's abduction: "There should be a price. They should release prisoners and they should release the soldier." Aid agencies have been warning of an imminent humanitarian crisis in the already poverty stricken Gaza Strip because of a combination of the cuts in power since the six transformers at Gaza's only power station . . . which supplies up to half the electricity in the Strip . . . were destroyed by Israeli missiles and shortages of fuel needed to run emergency generators for water treatment plants and hospitals. Israel insisted yesterday there were still "1,300,000 litres of fuel" in Gaza gas stations but would "work to transfer" fuel and goods into Gaza "in the coming days". The veteran Israeli peace activist, Uri Avnery appealed on Al Jazeera to Cpl Shlait's captors to give details of his condition to his family, and also proposed a deal under which the soldier would be released in return for a promise . . . made to, and guaranteed by, the Egyptian president Hosni Mubarak . . . for the future release of an agreed number of prisoners.

But Mr Regev said yesterday that while Israel would prefer it to be fulfilled by diplomatic efforts, the demand for the "unconditional" release of the soldier was one by Europe and the US as well as Israel.

Diplomats say Israeli thinking over the past few days has been to allow a period for diplomatic efforts as a means of strengthening the "legitimacy" of a military ground operation if it judges it necessary.