GAZA - Hamas's top leader warned Israel its army would be defeated if it invaded the Gaza Strip, while the United States said it envisioned a ceasefire with international monitoring that would ensure the Islamist group could not rearm.

Israeli armored forces remained poised on the Gaza border for a possible ground operation, a week after Israel launched devastating air strikes with the declared aim of ending rocket attacks on its southern towns.

Gaza medical officials put the Palestinian casualty toll at least 429 dead and 2,000 wounded.

A United Nations agency said more than a quarter of those killed in the Gaza Strip were civilians. A leading Palestinian human rights group put the figure at 40 percent.

Four Israelis have been killed by Palestinian rockets since Israel's offensive began, including longer-range weapons that have hit the port of Ashdod and the desert town of Beersheba, forcing schools to shut and residents to scurry for shelter.

In Damascus, Hamas leader Khaled Meshaal sounded a defiant note in a televised speech.

We are ready for the challenge, this battle was imposed on us and we are confident we will achieve victory because we have made our preparations, Meshaal said.

A Palestinian official has told Reuters that Egypt had begun exploratory talks with Hamas to stop the fighting.

U.S. President George W. Bush, in his first public comments on the hostilities that erupted less than a month before he leaves office, said: Another one-way ceasefire that leads to rocket attacks on Israel is not acceptable.

And promises from Hamas will not suffice -- there must be monitoring mechanisms in place to help ensure that smuggling of weapons to terrorist groups in Gaza comes to an end, he said in remarks prepared for his weekly Saturday radio address, which was released Friday.

The United States has demanded Hamas, which Israel says has been smuggling weapons through tunnels under Gaza's border with Egypt, take the first step by halting rocket attacks on Israel.

In the Israeli-blockaded Gaza Strip, 1.5 million Palestinians are unable to escape the conflict. Residents face bombs, missiles and flickering electricity, and queue for bread along streets littered with broken glass and other debris.

Ten Palestinians were killed Friday in more than 30 Israeli air strikes. Seven of them were civilians, including five children, local medics said.

One missile killed three Palestinian children aged between eight and 12 as they played on a street near the town of Khan Yunis in the south of the strip. One was decapitated.

Islamist fighters fired rockets at Israel's ancient port of Ashkelon, blowing out windows in an apartment building. Another house took a direct hit from a long-range missile later in the day, and cars were set ablaze.

DIPLOMACY

Bush and U.S. Secretary of State Condoleezza Rice have been engaged in telephone diplomacy during the past week, talking with leaders in the Middle East and Europe, including Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas.

Earlier Friday the White House said Israel must decide for itself whether to go into the Gaza Strip with ground forces but it cautioned any actions should avoid civilian casualties and ensure the flow of humanitarian goods.

Hamas is believed to have 25,000 fighters. Its men have been maintaining a vigil along the Israeli frontier, observing army movements on the other side and broadcasting messages in Hebrew over field radios telling their enemy they are not afraid.

In his remarks, Bush expressed concern about the humanitarian situation in Gaza and said the United States had offered $85 million to relief efforts this week.

Meshaal urged Arabs to step up aid and to send medical teams. He said European and Arab countries had contacted Hamas to discuss ending the fighting but he did not name them.

Israel has been allowing about 90 truckloads of food and medicine to enter the Gaza Strip daily, saying its enemy was Hamas, not the Palestinian people. Israel tightened its blockade of the territory after Hamas seized the enclave in fighting against Abbas's Fatah group in 2007.

We will not rest until we destroy the Zionist entity, said Hamas leader Fathi Hammad at the funeral of Nizar Rayyan, a senior Hamas leader who was killed along with four wives and 11 children in an air strike Thursday.

Bracing for protests and retaliatory violence, Israel sealed off the occupied West Bank to deny entry to most Palestinians and beefed up security at checkpoints.

Egypt Israel George W. Bush