Prime Minister Ehud Olmert convened his top ministers on Wednesday to discuss Israel's response to the latest wave of Palestinian rocket fire from the Gaza Strip, as public pressure for retaliation grew after an attack that nearly hit a crowded nursery school.

Ahead of Wednesday's meeting of the Security Cabinet, several ministers said they favored cutting off electricity, water or fuel supplies to the Gaza Strip to put pressure on the area's Hamas rulers to halt the rocket fire. Others were pressing for broad or pinpointed military operations to hunt the militants.

Islamic Jihad, a radical Palestinian militant group, has carried out this week's rocket fire. But Israel says it holds Hamas responsible for ensuring quiet since it now controls Gaza.

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The meeting came as Tony Blair was in Jerusalem in his new role as representative of the "Quartet" of Middle East mediators. The former British prime minister scheduled a series of meetings Wednesday, including talks with Israeli Defense Minister Ehud Barak. Blair is expected to be in the area for about 10 days before reporting at the end of the month to the Quartet, which is comprised of the U.S., Russia, the European Union and the U.N.

Pressure has been mounting on the Israeli government to respond to the persistent rocket fire from Gaza, especially after Monday's attack next to a day-care center in the southern town of Sderot. No one was injured, but the explosion caused widespread panic.

Later Wednesday, Sderot residents planned a large demonstration near Olmert's office in Jerusalem to demand the government stop the rockets.

A number of top officials, including Barak, Foreign Minister Tzipi Livni and Vice Premier Haim Ramon, have endorsed limiting or cutting electricity, water or fuel supplies to Gaza. The impoverished strip relies almost entirely on Israel for the resources.

At least two other ministers were pressing for military action.

"The answer has to be military ... I think we need to decide on a few operations against the rocket launchers," Interior Minister Meir Sheetrit told Israel Radio Wednesday. "I don't rule out an incursion ... and taking the area for two or three weeks."

Sheetrit said he opposed cutting off the supply of water, electricity or fuel, saying he believes it would violate international law.

Israel's Defense Ministry declared a state of emergency in Israeli communities near Gaza on Tuesday, a step sometimes taken before a military operation.

The rocket fire has persisted almost daily for six years, abating occasionally with cease-fires. Although the rockets are inaccurate, they cause widespread panic in communities near Gaza and can be deadly. Twelve people have died in rocket attacks.

The rockets have perplexed the high-tech Israeli military, which has been unable to develop a way to halt the crude rockets, which lack navigation systems and are in the air for a very short time.

The Israeli army frequently enters Gaza in pinpointed operations in rocket launching areas or carries out airstrikes when it spots a rocket squad.

On Wednesday, Israeli tanks and bulldozers moved into the northern Gaza Strip in what appeared to be a limited operation against the launchers. No shooting nor injuries were initially reported.

A diplomatic option seemed unlikely since Israel does not speak to Hamas, which has killed hundreds of Israelis in suicide bombings and refuses to renounce violence. Hamas grabbed control of the Gaza Strip in June in bloody fighting with forces affiliated with Palestinian President Mahmoud Abbas' Fatah Party.

The Western-backed Abbas has since fired Hamas from the unity government, leaving Fatah in control in the West Bank and Hamas ruling the Gaza Strip.

Tensions have been high between the groups in Gaza since the takeover, with Hamas arresting hundreds of security forces and officials affiliated with Fatah.

On Wednesday, Hamas forces arrested the leader of a pro-Fatah Islamic charity called Al Falah, the group said. Hamas did not immediately give a reason for the detention.

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