Israel said on Saturday it would not agree to a longer term truce with the Hamas rulers of the Gaza Strip unless an Israeli soldier held by the Islamists was freed.

Israel had tied a full opening of its border crossings with Gaza, a Hamas condition for a ceasefire, with the release of Gilad Shalit, held captive in Gaza since 2006 when he was kidnapped in a cross-border raid.

"The prime minister's position is that Israel will not reach understandings on a truce before the release of Gilad Shalit," Prime Minister Ehud Olmert's office said in a statement.

Palestinian officials had reported significant headway in the indirect talks mediated by Egypt.

Hamas wants Israel to free hundreds of Palestinians held in its jails in exchange for Shalit. But it wants talks on a prisoner swap deal and the opening of Gaza's crossings to take place after a ceasefire announcement.

A fragile ceasefire on Jan. 18 ended Israel's three-week offensive in the Gaza Strip. The ceasefire has largely held but Israel has responded to sparse cross-border rocket fire with air strikes against Hamas targets in Gaza.

A Hamas official told Reuters that no announcement on a longer ceasefire would be made on Sunday as had been expected.

Olmert's office said any decision on the ceasefire talks would be made while taking into account "the new political circumstances" after an Israeli election produced a strong showing for right-wing parties in parliament.

Israeli media said Olmert was hinting he would consult hawkish Likud leader Benjamin Netanyahu, favoured to form the next government.

Hamas official Taher al-Nono told Reuters from Cairo that efforts were underway to try and overcome what he called "Israeli obstacles" that were delaying the announcement of an agreement.

DISAGREEMENT

Hamas spokesman in Gaza, Fawzi Barhoum, said the Egyptian-mediated talks were stalled by disagreement on the duration of the ceasefire. Israel wanted an open-ended ceasefire while Hamas favours an 18-month truce that could be extended.

"Once this obstacle is overcome an announcement would be made," Barhoum said.

Hamas had said earlier this week that most stumbling blocks had been overcome and a ceasefire would be announced on Sunday.

Cross-border violence continued on Saturday. The Israeli army said Palestinian militants detonated an explosive against an army patrol on the Israeli side of the Israel-Gaza frontier.

The Feb. 10 Israeli election failed to produce a clear winner. Foreign Minister Tzipi Livni's centrist Kadima party narrowly defeated Likud. But Netanyahu is in a better position to form the next coalition government given a right-wing majority bloc in parliament.

Israeli politicians said on Friday that Livni and Netanyahu were weighing a unity government that would include the leftist Labour Party in a bid to keep out nationalist parties.

If that fails, Netanyahu could turn to religious and hardline parties to form a government that may reject any ceasefire with Hamas.

Olmert, who resigned over a corruption probe, will stay on as caretaker prime minister until a new government is formed, a process that could take weeks.

Israeli media reported that Olmert was making an extra effort to secure a ceasefire deal that includes Shalit's release before he stepped down.