Israeli Prime Minister Ehud Olmert, looks on during a ceremony in his Jerusalem offices, Sunday July 2, 2006. Israeli aircraft blasted the office of Palestinian Prime Minister Ismail Haniyeh of Hamas early Sunday, part of a military campaign aimed at pressuring Hamas militants to release a captive Israeli soldier. Later Sunday, Israeli Prime Minister Ehud Olmert and Defense Minister Amir Peretz were to meet with security officials to discuss whether to give diplomacy more time or to escalate the military operation.(AP Photo/Jim Hollander, Pool)

At a cabinet meeting several hours later the Israeli prime minister, Ehud Olmert, said he would do whatever was necessary to secure the soldier's release. "I have instructed the security establishment and the [military] to increase the strength of their actions in order to pursue these terrorists, those who dispatch them, their ideologues and those who sponsor them. Nobody will be exempt," he said.

Mr Olmert said Israeli attacks on Gaza would end immediately the soldier was freed. The head of Israel's Shin Bet security service, Yuval Diskin, told the cabinet that the crisis might take a long time to resolve. "We have to take a deep breath ... there is no magic solution," he said.

The defence minister, Amir Peretz, warned that if the crisis continued Israel would go after "higher calibre targets", said by his aides to refer to senior Hamas officials in the occupied territories and in exile. Last week Israel detained eight Hamas cabinet ministers in the Palestinian government who live in the West Bank, and 20 of the group's MPs.

Roni Bar-On, an Israeli cabinet minister, said the objective of the attack on Mr Haniyeh's office was to "compromise the Hamas government's ability to rule".

Hamas's military wing raised the stakes yesterday by threatening to destroy civilian infrastructure inside Israel if the Israeli military kept up its attacks on non-military targets in the Gaza Strip. Last week the air force bombed the territory's only power plant and bridges. Hamas said it would hit "similar targets" in Israel.

The increasing threats came as diplomatic efforts appeared stalled after Egypt attempted to broker a deal that would see Palestinian militias free Corporal Gilad Shalit in return for Israel giving a guarantee to a third party, probably Egypt, to release some Palestinian prisoners in the near future. Some in the Palestinian leadership said there was still a possibility of a breakthrough, but Mr Olmert said there would be no deal.

"These are not easy days for the state of Israel, but we have no intention of capitulating to blackmail," he said. "Everyone knows that capitulating to terrorism today means inviting the next act of terrorism. We will not do this."

The prime minister said Israel should not be blamed for the suffering of ordinary Palestinians in the Gaza Strip caused by its attacks on infrastructure that have cut power much of the time. The fault lay with "a bloodthirsty gang of terrorists" holding Cpl Shalit.

However, Israel still held off from a fullscale ground invasion of Gaza, even though it has moved its tanks and troops to the edge of the Rafah and Khan Yunis refugee camps in southern Gaza, where the military believes that the missing soldier is being held. The UN warned that an Israeli ground attack could displace up to 25,000 people.

Israel opened the main cargo crossing into Gaza for about four hours yesterday to permit the delivery of some foodstuffs, medicines and fuel, at the request of the US secretary of state, Condoleezza Rice.

Guardian Unlimited © Guardian Newspapers Limited 2006

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