Israel launched a brief incursion into Gaza on Tuesday, overshadowing a new peace push by US Secretary of State Condoleezza Rice who held talks at the time in Jerusalem with Prime Minister Ehud Olmert.
Palestinian medics said the Israelis shot dead a 20-day-old baby girl during exchanges of fire with gunmen, and that 10 people had been wounded, including at least three gunmen.
Rice had earlier met moderate Palestinian president Mahmud Abbas, who broke off all contacts with Israel on Sunday after a previous incursion killed more than 120 people, including 22 children.
He responded to her call for renewed talks with a demand for a comprehensive ceasefire.
But as the top US diplomat met Olmert, Israeli forces backed by helicopters clashed with Hamas gunmen after several armoured vehicles entered Gaza east of the city of Khan Yunis.
The Israeli forces withdrew several hours later after arresting three people. Among them were the son of senior Islamic Jihad official Abu Muaz.
The father himself escaped from a siege of his house in the village of Al-Karara, several hundred metres (yards) from the border, Palestinian security sources said.
Baby Amira Abu Asr was killed in the same village, sources at the Nasser hospital in the town of Khan Yunis told AFP, and two civilians were wounded.
An Israeli army spokesman said he was "not familiar" with the killing of the baby.
Rice had earlier called for Israel to be "very cognizant of the effects of its operations on innocent people," urging both Israel and the Palestinians to renew peace talks that were dealt a major blow by the deadly Israeli onslaught of the past week.
"We look forward to the resumption of negotiations as soon as possible," Rice said after meeting Abbas.
She said President George W. Bush's goal of resolving the decades-old conflict and inking a historic peace deal by the end of his term in January 2009 was still possible.
"I still believe that that can be done," she told reporters.
Bush, too, said after meeting Jordan's King Abdullah in Washington that he was still "optimistic" about the prospects for the peace talks, relaunched to great fanfare at a US conference in November after a seven-year freeze.
The US president urged the two sides to "step up" efforts to end the violence and reach a deal.
"This is a process that, you know, always has two steps forward and one step back. We've just got to make sure that it's only one step back," Bush declared.
Abbas did not say when he might return to the negotiating table, but insisted that "the negotiations are necessary and we are committed to them."
Lead Palestinian negotiator Ahmed Qorei told reporters talks will resume once Israel's military operations in the Palestinian territories end.
Abbas called for a truce between Israel and the Palestinians, both in his West Bank powerbase and in the Gaza Strip, which has been ruled since June by the rival Hamas movement after the Islamists routed his forces.
"I insist on the necessity of installing a comprehensive truce in the Gaza Strip and the West Bank so that we can reach our goal of making 2008 a year of peace," Abbas said.
But Hamas rejected the Palestinian president's call for a reciprocal ceasefire, insisting the blame lay with Israel.
"We consider the statements of the Palestinian president about the truce an unbalanced call because the problem lies in the occupation, not in the Palestinian people," its spokesman Sami Abu Zuhri said.
The bloodshed continued on Tuesday, with Israeli raids killing two Palestinians in Gaza, from which militants fired three rockets, with one falling inside the Jewish state.
Rice reiterated that the rocket fire had to stop and called on Israel -- which earned international condemnation for excessive use of force during the Gaza attacks -- to spare innocent lives during its raids.
"The United States of course understands Israel's right to defend itself, but Israel needs to be very cognizant of the effects of its operations on innocent people," she said.
Israeli Defence Minister Ehud Barak warned that the strikes on Gaza would continue as long as militants fired rockets, and he placed the responsibility for the killing of civilians on Hamas.
"The operations will continue," he said during a visit to northern Israel. "To those who criticise us, our friends among us, I say that the responsibility lies with those who fire rockets."
Rice's visit coincided with the publication of a Vanity Fair article claiming that she and Bush covertly worked to oust Hamas after it won 2006 parliamentary elections, breaking the decades-long hold on power of Abbas's Fatah party.
Citing confidential documents, the magazine said the United States sought to arm a force led by Fatah loyalists to oust Hamas militants from power, but that the plan backfired.
"Instead of driving its enemies out of power, the US-backed Fatah fighters inadvertently provoked Hamas to seize total control of Gaza," it said.
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