Israel's prime minister pledged Sunday to continue attacking Gaza militants, ruling out truce negotiations with Hamas amid widespread skepticism about the Islamic group's ability to halt rocket attacks.

An Israeli cabinet minister, meanwhile, angered moderate Palestinians with another plan for new Jewish housing in a disputed part of Jerusalem, complicating renewed peace talks.

There have been almost daily reports of truce feelers from the embattled Islamic Hamas regime in Gaza, and Israeli defense officials have said they are examining the proposals.

But at the weekly cabinet meeting Sunday, Prime Minister Ehud Olmert rejected negotiations with Hamas because it has rebuffed international demands that it recognize Israel, renounce violence and endorse past peace accords.

"There is no other way to describe what is happening in the Gaza Strip except as a true war between the Israeli army and terrorist elements," Olmert told his cabinet, ruling out truce talks.

The truce feelers started surfacing last week after two days of Israeli airstrikes killed 12 people, including two top commanders of the militant Islamic Jihad group. The first came through a call from Hamas political leader Ismail Haniyeh to an Israeli TV reporter and later, by way of Egypt, which has mediated several other past truces.

Hamas has offered to persuade fellow militants in Gaza to stop their daily rocket fire if Israel halts its air and ground operations in the coastal strip.

But Israel doubts whether Hamas has either the will or the ability to force the other militants to stop firing rockets.

Islamic Jihad is behind most of the rocket salvos, and on Sunday, the group again rejected a truce with Israel. By nightfall, four rockets fired from Gaza exploded in Israel, one damaging a factory near the southern city of Ashkelon, the military said.

"We have declared (this war) and we will continue," Olmert said at the start of the cabinet meeting, which was open to the media. "This is true regarding Hamas, Islamic Jihad and all other elements."

Despite their overt rejections of a formal cease-fire, Israeli officials have been saying a formal truce is unnecessary. They say if Gaza militants stop the rocket fire, Israel would have no reason to attack.

Israeli officials said Defense Minister Ehud Barak will travel this week to Egypt for talks with President Hosni Mubarak. It was unclear whether a cease-fire would be on the agenda.

Also Sunday, Israel allocated $207 million over five years to develop a system, with the U.S., to shoot down missiles such as the ones fired from Gaza or during last year's war against Hezbollah guerrillas in Lebanon.

After Hamas overran Gaza in June, expelling forces loyal to moderate Palestinian President Mahmoud Abbas, Israel and Egypt closed their borders with Gaza, further worsening the critical economic situation there.

In parallel, the West began promoting the rival Abbas government in the West Bank, renewing aid cut off after Hamas won a 2006 election.

At Mideast conference hosted by President Bush last month in Annapolis, Md., Israel and the Palestinians resumed peace talks for the first time in seven years.

But disputes over Israeli construction in Jerusalem have harmed the atmosphere. Just before the talks restarted, Israel announced a plan to build 307 apartments in Har Homa in east Jerusalem, which Israel captured in the 1967 Mideast war and annexed.

The international community never recognized Israeli sovereignty over east Jerusalem, and Palestinians claim the area as the capital of the state they want to create.

On Sunday Rafi Eitan, minister for Jerusalem affairs, confirmed that the Construction Ministry's proposed budget for 2008 includes 500 new apartments for Har Homa, as well as 240 new apartments in Maaleh Adumim, a major West Bank settlement just outside Jerusalem.

Eitan told Army Radio that Israel never promised to halt construction within the municipal borders of Jerusalem. Eitan called both areas "integral" parts of Jerusalem.

Olmert spokesman Mark Regev said he was "not aware" of the plan to expand Har Homa and said there was "no new decision" for additional construction in Maaleh Adumim.

Abbas charged that the construction projects undermined new peace efforts.

"The negotiations are facing obstacles," Abbas told members of his Fatah Party. "We can't understand these settlement activities at a time we're talking about final status negotiations."

Tensions continued Monday, as Israeli aircraft killed two Hamas militants in an airstrike, according to Hamas and Palestinian doctors.

The Israeli army spokesman confirmed the attack, saying the gunmen were located in the area of Bureij refugee camp not far from the Gaza-Israel border.

Hamas said the gunmen were members of a "night guard" that includes militants of different factions and is meant to thwart Israeli troop incursions into the Gaza Strip.