Israeli troops advanced into densely populated suburbs of Gaza early Tuesday; just hours after Prime Minister Ehud Olmert warned Islamic militants of an iron fist unless they agree to Israel's terms to end the fighting.

Israeli tanks have rolled into the Tel Hawwa neighborhood where tens of thousands of Palestinians live in apartment blocks, Palestinian residents told the Associated Press.

According to Olmert, military operations would only end if Hamas agreed to put an end to the rocketing to southern Israeli towns.

Despite the warning, Hamas showed no sign of wavering instead their leader was quoted as saying that his militants are closer to victory,” AP reported.

While the war rages on and with neither side giving in, Egypt said it was making slow but sure progress towards brokering a truce.

According to special Mideast envoy Tony Blair, who met in Cairo with Egyptian president Hosni Mubarak Monday, elements were in place for a cease-fire, according to the Washington Post.

Sounds of the battle could be heard clearly before dawn Tuesday around the city of 400,0000 as the Israeli forces, backed by artillery and attack helicopters, moved into neighborhoods east and south of Gaza City. Israeli gunboats shelled the coast from the west.

The area was covered in thick smoke as several buildings were on fire.

The fighting that broke out on December 27 has killed more than 900 Palestinians, of which half are civilians.

Egypt Israel