The army has been given the green light to enter residential areas but will not reoccupy the Gaza Strip, the official said. He spoke on condition of anonymity because no official statement has been released from the meeting yet.

Ground troops entered Gaza last week after Palestinian militants captured an Israeli soldier.

Israel's security cabinet is meeting to discuss the unprecedented attack.

Israel has carried out more than a week of raids in response to the abduction by militants of one of its soldiers.

In the latest raid, witness said the Palestinian interior ministry complex was badly damaged. Nearby apartments were also hit, Reuters news agency reported.

The attack on Ashkelon struck an empty school in the deepest rocket strike inside Israel yet.

The Qassam rocket landed in a car park in the high school in the centre of the city shortly after 1900 (1600 GMT) on Tuesday.

Pupils were on holiday and there were no injuries, although the rocket caused some damage and left a crater.

The BBC's Nick Thorpe in Jerusalem says the attack is being taken very seriously by Israel.

While Qassams regularly strike another small Israeli town, Sderot, Ashkelon - with about 120,000 inhabitants - is further away from Gaza and has been spared direct hits until now.

Mr Olmert called the attack "a major escalation in the war of terror that the Hamas organisation is responsible for".

A large Israeli force has been waiting on the northern edge of the Gaza strip for days, following the capture of 19-year-old Cpl Gilad Shalit.

A small force entered the area on Monday morning and a larger force might now be sent in, to try to prevent more rockets being fired, our correspondent says.

'Long war'

Cpl Shalit is believed to be held in southern Gaza.

Despite the expiry of a Tuesday deadline set by the militants for Israel to free Palestinian prisoners, Israel said the 19-year-old tank gunner was alive.

"We know that until now Gilad Shalit is alive, we know that he is injured, that he was seen by a Palestinian doctor a few days ago," government spokesman Avi Pazner told French television.

But Abu al-Muthana, from the Islamic Army - one of three groups holding Cpl Shalit - said there would be no more talks nor information released about the soldier's fate.

As the crisis wore on, Mr Olmert warned that the fight against Palestinian militants would be drawn out.

"This is a long war. It requires lots of patience, sometimes endless restraint. We have to know when to clench our teeth and to deal a decisive blow.

Palestinian Prime Minister Ismail Haniya of Hamas, whose Gaza offices were hit in a Israeli missile strike three days ago, has appealed for Cpl Shalit's life to be spared.

"The government... is still calling for preserving the life of the captured Israeli soldier and for him to receive good treatment," Mr Haniya said.

The BBC's Middle East editor Jeremy Bowen says nobody on either side knows how long this crisis will last.

Their public statements are a form of psychological warfare, to show resolution and to put pressure on their opponents, he says.

The army said it was checking the report.

There were no immediate reports of casualties.

The airstrike came several hours before the expiry of a deadline set by Palestinian militants for Israel to agree to free hundreds of prisoners in exchange for a captured soldier.

Israel has sent troops and tanks into southern Gaza, saying that is where Shalit is believed to be held after three militant factions abducted him in a cross-border raid from Gaza on June 25.

Mediation efforts to negotiate his release have stalled.

Israel has refused demands that it free hundreds of jailed Palestinians in return for the 19-year-old soldier. The crisis has been further complicated by the fact that some of Shalit's captors are linked to the governing Palestinian faction Hamas.

In what appears to be a precaution against detection by Israeli intelligence services, Shalit's captors have turned off their mobile telephones and are communicating with the outside world using trusted "bosses" aboveground, Yedioth reported.

"I repeat, this visit focuses on democracy in the parliaments, which we are seeking to build relations with, and this is our mission," he said after being asked a second time about his opinion on the Mossad-sponsored network and the US reaction to it.

The US committee faced more difficult questions during a seminar on congressional committees which was attended by academics and politicians who took the opportunity to pose questions about the US legal process and the country's policies.

"There's a wide range of views in America toward our policy in Iraq and the Middle East, and even within our delegation," said Drier, responding to criticism of the US role in Iraq and its continued support of Israel.

"I agree with some [policies] and not others, but our mission is to focus on building relationships," he said. "We are here to talk about our own experiences, not to impose ideas on anyone."

"We understand that we have very different constitutional systems, but we are both democracies with a strong stake in representative government," added Congressman Dave Price.

Drier concentrated on the "need for an independent Parliament and adequate oversight of decisions by the executive branch," but would not elaborate on the US refusal to recognize the current chief executive, President Emile Lahoud.

"We're not in the midst of determining what should happen in Lebanon," Drier told The Daily Star. "All I'm doing is talking about the United States and what we do, and we're setting it as an example: We work independent of the executive branch and we do everything we can to make sure that others around the world can see that."

Zionism vs. Judaism

On the panel were three Jewish anti-Zionists and Palestinian scholar Dr Ghada Karmi.

Dr. Ilan Pappe, the Haifa University historian at the forefront of a campaign calling for sanctions and an academic boycott of Israel, said that in order to divorce Zionism from Judaism we must not adopt their discourse.

Rabbi Ahron Cohen, who represented the anti-Zionist Neturei Karta Hasidic sect, said, "Zionists imposed a secular faith state on the Palestinians, this is immoral and the underlying cause of the strife. Zionism and Judaism are incompatible concepts. Many Jews do not approve of Zionism but they cannot say this publicly."

European problem

Dr. Karmi, a research fellow at the Institute of Arab and Islamic Studies at Exeter University, said the tragedy of the Holocaust had been acted out in Europe and that it was therefore a European affair that had nothing to do with the Palestinians.

The former consultant to the Palestinian Authority offered her own interpretation: "The Europeans did it to atone for their sins and guilt, but the Jews who arrived in Palestine were not the Jews we knew, they were complicated and miserable and the problem is that they're still there."

"Israel has been a total disaster for the entire Arab world, nothing positive or beneficial has come from it," she added.

Dr. Hajo Meyer, a German born scientist and Holocaust survivor, was another panel member. Now living in Holland, he is a board member of Another Jewish Voice, part of the European Jewish Alliance for a Just Peace. In his latest book, "The End of Judaism", he has criticised Israel for "treating the Palestinian people in the same way the Nazis treated Jews during the Second World War".

Dr. Meyer said that anti-Semitism is a form of xenophobia, but accusations are met with much swifter condemnation and reprimands.

Islam Channel plans to release a DVD of the debate later in the year.