By Nidal al-Mughrabi and Jeffrey Heller
GAZA/JERUSALEM, Nov 19 (Reuters) - Israel bombed dozens of targets in Gaza on Monday and said that while it was prepared to step up its offensive by sending in troops, it preferred a diplomatic solution that would end Palestinian rocket fire from the enclave.
Mediator Egypt said a deal for a truce to end the fighting could be close. The leader of Hamas said it was up to Israel to end the new conflict it had started. Israel says its strikes are to halt Palestinian missile attacks.
Twelve Palestinian civilians and four fighters were killed in the air strikes, bringing the Gaza death toll since fighting began on Wednesday to 90, more than half of them non-combatants, local officials said. Three Israeli civilians have been killed.
After an overnight lull, militants in the Hamas-run Gaza Strip fired 45 rockets at southern Israel, causing no casualties, police said. One damaged a school, but it was closed at the time.
Among targets struck in Gaza on Monday, Israeli missiles blasted a tower block housing international media for the second straight day. One person was killed there, described by a source in militant groups Islamic Jihad as one of its fighters.
Khaled Meshaal, exiled leader of Hamas, the Islamist group that rules the coastal strip, said Israel had failed to achieve its objectives. A truce was possible, but Hamas would not accept Israeli demands. Israel must first halt its strikes and lift its blockade of the enclave, he said.
"The weapons of the resistance have caught the enemy off guard," he told a news conference in Cairo
"Whoever started the war must end it," he said, adding Israeli Prime Minister Benjamin Netanyahu had asked for a truce, an assertion that a senior Israeli official dismissed as untrue.
Although 84 percent of Israelis supported the current Gaza assault, according to a Haaretz poll, only 30 percent wanted an invasion, while 19 percent wanted their government to work on securing a truce soon.
Thousands turned out on Gaza's streets to mourn four children and five women, among 11 people killed in an Israeli strike that flattened a three-storey home the previous day.
The bodies were wrapped in Palestinian and Hamas flags. Echoes of explosions mixed with cries of grief and defiant chants of "God is greatest".
The deaths of the 11 in an air strike drew more international calls for an end to six days of hostilities and could test Western support for an offensive Israel billed as self-defence after years of cross-border rocket attacks.
Israel said it was investigating its air strike that brought the home crashing down on the al-Dalu family, where the dead spanned four generations. Some Israeli newspapers said the wrong house may have been mistakenly targetted.
DIPLOMATS SEEK TRUCE
Egypt, where newly-elected President Mohamed Mursi has his roots in the Muslim Brotherhood seen as mentors to Hamas, is acting as a mediator in the biggest test yet of Cairo's 1979 peace treaty with Israel since the fall of Hosni Mubarak.
Egyptian negotiators could be close to achieving a deal between Israel and the Palestinians to stop the fighting, said Mursi's Prime Minister Hisham Kandil, who visited Gaza on Friday in a show of support for its people.
"I think we are close, but the nature of this kind of negotiation, (means) it is very difficult to predict," Kandil said in an interview in Cairo for the Reuters Middle East Investment Summit. Egypt has been hosting leaders of both Hamas and Islamic Jihad, a smaller armed faction.
Israeli media said a delegation from Israel had also been to Cairo for truce talks. A spokesman for Netanyahu's government declined comment on the matter.
"Israel is prepared and has taken steps, and is ready for a ground incursion which will deal severely with the Hamas military machine," a senior official close to Netanyahu told Reuters.
"We would prefer to see a diplomatic solution that would guarantee the peace for Israel's population in the south. If that is possible, then a ground operation would no longer be required. If diplomacy fails, we may well have no alternative but to send in ground forces," he added.
That language echoed that of U.S. President Barack Obama, who said on Sunday it would be "preferable" to avoid a move into Gaza, but that Israel had a right to self-defence and no country would tolerate missiles raining down on its citizens.
United Nations Secretary-General Ban Ki-moon was also due to arrive in Cairo to weigh in on ceasefire efforts. Egypt's foreign minister is expected to visit Gaza on Tuesday with a delegation of Arab ministers.
In scenes recalling Israel's 2008-2009 winter invasion of Gaza, tanks, artillery and infantry have massed in field encampments along the sandy, fenced-off Gaza border and military convoys moved on roads in the area.
Israel has also authorised the call-up of 75,000 military reservists, so far mobilising around half that number.
The Gaza fighting adds to worries of world powers watching an already combustible region, where several Arab autocrats have been toppled in popular revolts for the past two years and a civil war in Syria threatens to spread beyond its borders.
In the absence of any prospect of permanent peace between Israel and Islamist factions such as Hamas, mediated deals for each to hold fire unilaterally have been the only formula for stemming bloodshed in the past.
Izzat Risheq, aide to Meshaal, wrote on Facebook that Hamas would enter a truce only after Israel "stops its aggression, ends its policy of targeted assassinations and lifts the blockade of Gaza".
Listing Israel's terms, Vice Prime Minister Moshe Yaalon wrote on Twitter: "If there is quiet in the south and no rockets and missiles are fired at Israel's citizens, nor terrorist attacks engineered from the Gaza Strip, we will not attack."
Yaalon also said Israel wanted an end to Gaza guerrilla activity in the neighbouring Egyptian Sinai peninsula.
Israel bombed some 80 sites in Gaza overnight, the military said, adding in a statement that targets included "underground rocket launching sites, terror tunnels and training bases" as well as "buildings owned by senior terrorist operatives".
Netanyahu has said he assured world leaders Israel was doing its utmost to avoid causing civilian casualties. At least 22 of the Gaza fatalities have been children, medical officials said.
A big rocket strike could be enough for Netanyahu to give a green light for a Gaza invasion, despite the political risks before a January vote that is expected to see him re-elected.
Israel's declared goal is to deplete Gaza arsenals and force Hamas to stop rocket fire that has hit Israeli border towns for years. The rockets now have greater range: several projectiles have targeted Tel Aviv and Jerusalem. None hit the two cities. Some were shot down by Israel's Iron Dome interceptor system.
Hamas and other groups in Gaza are sworn enemies of the Jewish state which they refuse to recognise and seek to eradicate, claiming all Israeli territory as rightfully theirs.
Hamas won legislative elections in the Palestinian Territories in 2006 but a year later, after the collapse of a unity government under President Mahmoud Abbas, the Islamist group seized Gaza in a brief civil war with Abbas's forces.