JERUSALEM - Israel's prime minister ordered the army to scale back operations in Gaza on Monday after a sharp drop in Palestinian rocket fire, raising the possibility of a wider truce that would ease the path for peace talks.
Ehud Olmert denied talk of a cease-fire with Gaza's Hamas rulers but said there was no need to attack Gaza as long as calm prevailed.
Hamas said it was encouraged by the relative lull, saying it proved that attacks on Israel were paying off. The militant group wants an agreement that would include opening the Gaza Strip's shuttered borders.
Israel, concerned that calm could enable the militants to claim victory and rearm, said it reserves the right to strike at will.
The army said no rockets were fired Monday, and Israel has not carried out any airstrikes or land raids in Gaza since Wednesday. Last week, militants fired an average of more than a dozen rockets a day, while the army struck hard in Gaza, leaving more than 120 Palestinians dead, according to Palestinian medical officials.
The past few days have seen no serious Israeli casualties from rocket fire, though Palestinian militants killed two Israeli soldiers Thursday in a roadside bombing along the Gaza border. Later that day, a Palestinian fired on students at a Jewish seminary in Jerusalem, killing eight before he was shot dead.
The increase in violence in the past two weeks has raised serious doubts about President Bush's goal of forging a peace deal by year's end. Hamas, which violently took control of the Gaza Strip last June, has proven itself capable of playing the role of spoiler.
Vice President Dick Cheney will travel to the region on Sunday to meet with Mideast leaders on "issues of mutual interest," the White House said Monday. Besides Israel and the West Bank, Cheney will travel to Oman, Saudi Arabia and Turkey.
Egypt has been trying to mediate a truce between Israel and Hamas, and officials from the warring sides have traveled to Egypt in recent days to discuss the matter.
On Monday, Olmert reiterated that there was no need for an official truce because Israel had no reason to attack Gaza if the rocket fire ceased. In the meantime, he said "the army has complete freedom of action in Gaza without restrictions and according to its needs."
"There is no agreement. There are no negotiations, not directly and not indirectly," Olmert said. "We don't know if Egypt reached any agreement with Hamas. In any case, it hasn't received a mandate from us to do so."
Ismail Haniyeh, the Hamas prime minister, said he appreciated the Egyptian effort and was encouraged by Israel's tacit willingness to reach a calm. Hamas has been pushing for a wider truce deal that would include an end to the international blockade imposed on Gaza after the militant group took power.
"We see the change in the Israeli position -- the halt to attacks on Gaza -- as an admission of failure. It reinforces the theory of balance of deterrence that the resistance has established," he said.
Defense Minister Ehud Barak said it was too early to call the Israeli offensive over.
"Whoever thinks that we have finished the story with Gaza already and there is calm, I want to correct them -- we haven't finished anything there yet," he said. "This fighting is continuous and it will continue. Sometimes it will increase and decrease."
Hamas officials said their leaders would talk to Egypt in the next day or two to continue the efforts to work out a deal. A senior Israeli Defense Ministry official, Amos Gilad, returned Sunday from talks in Cairo with Egyptian officials.
Hossam Zaki, an Egyptian Foreign Ministry spokesman, told the TV station Al-Jazeera that Egypt was holding talks with the sides and that "there is interest from both parties in a period of calm."
Israel and Hamas have reached informal truces in the past, though each arrangement has unraveled. Since Hamas wrested control of Gaza, Israel has pursued peace efforts with moderate Palestinian President Mahmoud Abbas, who governs from the West Bank, while battling Hamas in Gaza both through military operations and an economic blockade.
Abbas said that the basics of a truce had been worked out and Hamas and Islamic Jihad militants were now seeking assurances they would not be the targets of Israeli manhunts.
"I think the Israelis have agreed upon this, that this is the deal which we may hear about in the next few days," Abbas told reporters during a visit to Jordan.
Olmert told an audience Monday that the fighting in Gaza, along with the shooting at the Jerusalem seminary, are aimed at undermining the peace efforts.
"Their purpose is to divert us from a path of peace," Olmert said. "There's no chance that they will succeed."
In another possible complication for peace efforts, however, Israeli officials announced plans to build 400 new homes in the Neve Yaacov neighborhood of disputed east Jerusalem. The initiative, along with an announcement a day earlier of an additional 1,100 units in the Jerusalem area, drew Palestinian condemnation.
Secretary of State Condoleezza Rice met at the State Department with Israel's foreign minister, Tzipi Livni, and told reporters that U.S. policy on expansion of settlements in disputed areas is well-known, and it is important to keep the atmosphere positive.
Earlier, her spokesman had called the housing expansion announcement unhelpful.
U.N. Secretary-General Ban Ki-moon said any expansion of settlements is a violation of international law, while EU foreign policy chief Javier Solana warned a new wave of building on disputed territory could jeopardize the peace process.
President Nicolas Sarkozy of France told visiting President Shimon Peres of Israel that "Israel's security depends on a stop to the colonization."
