Palestinians gather around a destroyed car following an Israeli air strike at the Rafah refugee camp in the Gaza Strip on Sunday. (Eyad Baba/Associated Press)Israeli ground forces advanced Sunday deep into Gaza's most populated area and began sending army reservists to battle Hamas.

"We have begun to integrate reservist forces into the action in the Gaza Strip," Israeli military spokesman Avi Benayahu told Reuters. "We aren't acting in panic, but cautiously."

Tanks rolled into residential neighbourhoods and infantry fighting heightened in streets and buildings with Hamas militants keeping up their rocketing of southern Israel.

An Israeli army spokeswoman said residential neighbourhoods in Gaza are riddled with homemade bombs and booby traps, including mannequins placed at apartment entrances. They're placed there to simulate militants and are rigged to explode if soldiers approach.

Late Sunday, dense plumes of smoke from explosions rose over Gaza City and heavy gunfire was heard just south of the city.

Israeli troops engage in fiercest fight since offensive began

Troops battled Palestinian gunmen in a suburb of Gaza City on Sunday in what appeared to be one of the fiercest ground battles of Israel's 16-day offensive against Hamas.

Israeli infantrymen and tanks entered the Sheikh Ajleen neighbourhood before dawn. Hamas and the smaller militant group Islamic Jihad said they ambushed the Israelis, leading to the battles.

Israel bombed 60 targets in Gaza on Sunday, including tunnels on the border with Egypt, an Israeli military spokesman said.

At least 31 Palestinians were killed, health officials said. It wasn't immediately known how many were militants and how many were civilians.

There was no word on Israeli casualties.

The Israeli military said Hamas fighters are wearing civilian clothes and endangering civilians by operating out of heavily populated residential areas.

Prime Minister Ehud Olmert, addressing his weekly cabinet meeting Sunday, would not give a timeframe for ending the military operation. He said Israel is "getting close" to achieving its goal of improving security, but "more patience, determination and effort is still demanded."

Military intelligence chief Amos Yadlin told the cabinet that Hamas "is not expected to raise a white flag," despite the deaths of senior members and shortages of ammunition.

Shin Bet security service chief Yuval Diskin told the cabinet that many Gazans are furious with Hamas for "bringing a disaster on Gaza."

Doctors in Gaza say the total number of Palestinians who have been killed since the aerial bombardment began Dec. 27, followed by the ground offensive a week later, is close to 890, roughly half of them civilians. Thirteen Israelis, 10 soldiers and three civilians, have died.

In Washington , U.S. president-elect Barack Obama said Sunday the deaths of Palestinian and Israeli civilians were "heartbreaking" and vowed early involvement in the quest for Middle East peace once he takes office.

Israel launched its offensive against Hamas in an attempt to halt years of rocket fire from Gaza at Israeli towns.

British Jews weigh in

Leading British Jews have said Israel's government must end its military action in Gaza to achieve security.

In a letter published in the Observer newspaper on Sunday, 11 signatories called on Israel to end military action and attempt to negotiate a settlement.

Those who backed the letter included Baroness Julia Neuberger, former Local Government Association chair Jeremy Beecham and Rabbi Tony Bayfield, head of the Movement for Reform Judaism.

They said Israel needs to stop Hamas rocket attacks into southern Israel, but must also end the loss of civilian life in Gaza.

With files from the Associated Press