Prime Minister Ehud Olmert pledged Sunday to press ahead with Israel's latest offensive in the Gaza Strip until the army "significantly decreases" Palestinian rocket fire on Israel.

In new fighting, Israeli troops killed three Palestinians, including a Hamas gunman, raising the death toll in the 5-day-old operation in the northern Gaza town of Beit Hanoun to 47 Palestinians. One Israeli soldier has been killed.

"This operation has one goal: to decrease the Qassam fire at southern Israeli towns and to halt the terror attacks that are trying to get organized and get out to Israel," Olmert said at the start of the weekly Cabinet meeting.

"We will take the steps necessary to significantly decrease this fire and to halt the terror activities," Olmert added.

Despite the crackdown, Palestinian militants fired a rocket into the southern Israeli town of Sderot, the army said. No one was injured.

Israel said its attacks are focused on militants who launch rockets. While most of the dead have been militants, several civilians — including a 4-year-old girl, a 72-year-old man, and two paramedics — have been killed. Two women who attempted to help a group of militants besieged in a mosque also died.

On Sunday, about 100 paramedics marched through the streets of Gaza City to protest the deaths of their colleagues — two 17-year-old volunteers — who were killed in an Israeli missile strike last week in the town of Beit Lahiya.

Beit Hanoun residents said conditions in town have rapidly deteriorated since Israel closed off the town last Wednesday.

"We have electricity, but no drinking water," said one 28-year-old woman, who declined to be identified because of the military presence in town.

She said there are shortages of staples like milk and diapers, and residents have been forced to share food as supplies run thin. She also said tanks were visible from her home, and that her husband had been taken away by Israeli troops for questioning. "I don't know what's happened to him," she said.

Vice Premier Shimon Peres said Israel was doing everything possible to avoid civilian casualties. "We have to get directly to the people who do the shooting and that is what we are trying to do," he told reporters.

At the Vatican, Pope Benedict XVI said Sunday he was worried about the "grave deterioration" in Gaza, and called on all sides to work to stop the bloodshed and immediately resume "direct, serious and concrete negotiations."

On Saturday, Palestinian President Mahmoud Abbas appealed for U.N. intervention to stop the Israeli operation.

Israel pulled out of Gaza last year, but attacked again in June after Palestinian militants carried out a cross-border raid in June on a military outpost, killing two soldiers and capturing a third.

Also Sunday, progress was reported in talks on forming a Palestinian government that would be acceptable to the West and bring crippling international sanctions to an end.

The plan being discussed calls for a government of technocrats who have political ties to either the militant Islamic group Hamas or to Abbas' Fatah movement.

Hamas would be allowed to appoint eight government ministers, to Fatah's four, and smaller factions would get one seat each — meaning Hamas would retain control over the Cabinet.

The political program would be intentionally vague, and not say whether or not the new government meets the West's demands for ending the boycott: recognition of Israel, renunciation of violence and acceptance of existing peace deals.

"We are talking about the final details of forming a national unity government," independent legislator Mustafa Barghouti, who has been shuttling between Abbas and Prime Minister Ismail Haniyeh of Hamas, said Sunday.

Negotiations have broken down repeatedly in the past, despite optimistic forecasts.

One of the remaining issues is the candidate for prime minister, to be chosen by Hamas.

Abbas has urged Hamas to choose an independent rather than someone with close ties to the group, in order to make the government more palatable to the international community, officials close to the president said, speaking on condition of anonymity because they are not authorized to discuss the negotiations.

Barghouti said he was optimistic the new government would win international recognition. "Forming this government will contain a mechanism that enables us to lift the siege," he said, referring to the sanctions.

Aid from Western donors — long the backbone of the Palestinian economy — has all but dried up since the Hamas group took power in March, following a January election victory.

As a result, the government has largely been unable to pay 165,000 civil servants, and tens of millions in emergency aid are now being rerouted through Abbas' office.