Facing a storm of criticism for its raid on Gaza, Israel offered Palestinians a series of goodwill gestures Wednesday and blamed faulty military intelligence for the deaths of nine children and four other civilians in the fatal attack on a Hamas military chief.

Palestinians, meanwhile, claimed militant groups were about to sign a cease-fire declaration before the attack. Israeli officials dismissed those reports and defended the bombing, even as they admitted intelligence surrounding the attack was flawed.

"It's a tragedy because innocent people got killed. It's not a tragedy because a cease-fire was imminent," said Daniel Taub, a Foreign Ministry spokesman. "Unfortunately that wasn't the case."

As Israelis braced for promised retaliation, Foreign Minister Shimon Peres said a troop pullback would go ahead from some occupied areas of the West Bank if they remain calm. He also said the government had released millions of dollars in blocked Palestinian taxes and issued 4,000 permits to Palestinians who work in Israel.

Each measure already was under negotiation during talks between Peres and the Palestinians before the Tuesday bombing, which killed Salah Shehadeh, who Israel says was responsible for dozens of attacks in the past 22 months of fighting and at the top of their most-wanted list of terrorists.

Peres said he hoped to press forward with negotiations on security and economic issues — including a Palestinian offer to resume security cooperation. Palestinians said there was no decision about continuing the talks.

Abdul Aziz Rantisi, a Hamas spokesman, said any cease-fire was off.

"After yesterday's heinous massacre in Gaza, there will be no more respect for a Zionist child or the so-called Zionist civilians," he said.

As politicians blamed an intelligence failure, the army said it would investigate the air raid on a crowded residential area of Gaza City when entire families were home asleep. The blast destroyed the building that housed Shehadeh and also killed his wife and one of their children. Three other buildings were damaged.

"The intelligence was apparently not complete," Israeli President Moshe Katsav told Israel Army Radio, saying political leaders bore the responsibility.

With the Israeli leadership admitting problems surrounding the attack, the media began questioning the use of what was reportedly a one-ton bomb in such a densely populated area.

"It's possible that the designation of the bomb was not right," said army spokeswoman Capt. Sharon Feingold.

The head of military planning, Maj. Gen. Giora Eiland, said the army had used the weapon because of its accuracy but acknowledged "wrong calculations" were made.

The United States, United Nations and many European and Arab governments condemned the strike, and the Palestinians threatened to take the case to the newly formed International Criminal Court. At the request of Saudi Arabia, the U.N. Security Council hastily scheduled a meeting for late Wednesday to discuss the attack.

Israeli media concluded the strike was a public relations debacle for Israel. "The assassination and the embarrassment," read the headline in Maariv. Haaretz said the army would investigate what it called the "Gaza bombing disaster."

Amid the angry criticism, Prime Minister Ariel Sharon, Defense Minister Binyamin Ben-Eliezer, Peres and Finance Minister Silvan Shalom met to discuss resuming talks with the Palestinians and easing the hardships in the Palestinian territories, Army Radio said.

Peres told reporters after the meeting that the army still intended to withdraw from areas of Hebron and Bethlehem if they remained calm and if the Palestinians assumed control.

He said the army also would consider leaving Ramallah, where Palestinian leader Yasser Arafat has been holed up for much of the last few months, if there was a plan guaranteeing law and order there.

Peres also said he had called the Palestinian finance minister Wednesday morning to tell him that about $45 million was being transferred — about 10 percent of the total amount Israel has withheld in tax revenues, and that Israel had forgiven about $31 million in Palestinian debt to Israeli utilities.

In addition, 4,000 work permits had been issued of a promised 7,000, and the total number would reach 30,000, he said.

Before fighting broke out in September 2000, an estimated 125,000 Palestinians crossed daily into Israel for jobs, but Israel has since blocked most of them, fearing attacks.

Ismail Abu Shanab, a leading Hamas official in Gaza, said the Islamic resistance group had held meetings with Palestinian officials in recent weeks in which Hamas agreed "we will stop these operations" if Israel withdrew from occupied Palestinian towns.

The Yediot Ahronot newspaper published what it said was a document that the Arafat-linked Al Aqsa Brigades had approved hours before the strike, in which they promised to "end all attacks against innocent men, women and children who are not fighters" and urged other Palestinian groups to follow suit.

It was not clear what that group's reaction to the Gaza attack would be.

Also on Wednesday, Palestinian rescue workers pulled the remains of three children from the rubble of the collapsed Gaza City apartment buildings. They had already been included in the number of dead.

A Chinese worker injured in a homicide bombing last week in Tel Aviv died, bringing the toll in that attack to four.

Meanwhile, an accomplice in the assassination of Israeli Prime Minister Yitzhak Rabin was released from jail 3 months early as part of efforts to relieve overcrowding in jails, officials said. Dror Adani, now 33, was sentenced to seven years in prison in 1996 for conspiring with assassin Yigal Amir and supplying him with a submachine gun to kill Rabin.