Hopes rose on Tuesday night of an end to the month-long war in Gaza, with officials from Hamas and other groups expressing cautious optimism that a deal would be made with Israel before the current 72-hour ceasefire ends on Wednesday evening.
After a day of conflicting reports about Egyptian mediators' efforts to narrow the gap between the two sides, Ihab al-Ghossein, a senior Hamas official and spokesman in Gaza, said he was optimistic.
"This time at least it is a real negotiation. There is talking and discussion about all our points and hopefully we will have an agreement. I'm optimistic there will be something," he said.
Hassan Abdu, of the smaller Palestinian Islamic Jihad group, said there had been "positive developments," though he warned that the two sides, who are talking in Cairo through Egyptian mediators, were still some way from a deal.
An official from the Popular Front for the Liberation of Palestine said he too believed an agreement would be reached. A spokesman from Fatah – Hamas's factional rival – put the chances of peace at "50-50".
Though all said the negotiations were tough, the tone of the statements was very different from those made by officials in Gaza during the previous 72-hour ceasefire last week. At least 20 Palestinians died and two Israelis were injured in renewed airstrikes and rocket attacks after the last ceasefire – the seventh – expired on Friday.
Israel broke off the talks after Hamas refused to extend the truce, saying it would not negotiate under fire.
More than 1,900 Palestinians, mostly civilians, have died in the month-long conflict so far. Sixty-four Israeli soldiers have been killed and three civilians have been killed in Israel. Tens of thousands of people have been made homeless in Gaza and around a quarter of the 1.8 million population of the overcrowded coastal enclave remain displaced.
Israel has demanded the disarmament of Hamas, which took de facto control in Gaza in 2007 after winning Palestinian elections in 2006.
An Israeli military source said that Israel saw the complete demilitarisation of Hamas and other militant groups in Gaza as being firmly on the table. "We cannot come to Cairo and not [ask for] demilitarisation. Right now our stance is firm: we want to see Gaza demilitarised," he said. "Israel is ready to live with Hamas in Gaza, but we are not ready to live with [a] Hamas with the ability to rearm again, to rebuild its military infrastructure."
Despite rhetoric threatening renewed conflict on both sides, options for both Israel and Hamas are in fact limited. Hamas is isolated diplomatically and weakened financially. Israel's anti-missile defence systems have proved effective and the wave of popularity for the organisation that the war has prompted in Gaza may ebb fast.
In Israel, many were surprised by the casualties sustained by troops who entered Gaza to seek and destroy cross-border tunnels. A new military operation involving a more ambitious deployment of ground forces into densely populated urban areas would be extremely costly for troops and civilians and would be likely to provoke global outrage.
The talks centre on the lifting of the blockade of Gaza imposed by Israel eight years ago, the key demand of the 12-man Palestinian delegation.
"We are not making demands, we are looking for our rights: lifting the siege, opening our borders, implementing past agreements, releasing prisoners," said Ghossein.
One key Palestinian demand is the construction of a sea port and reopening of an airport, as agreed in the Oslo agreements more than 20 years ago.
"We will not give Israel the security it wants until they lift the siege totally," said Abdu, of Palestinian Islamic Jihad.
Cairo-based diplomatic sources said the two sides were still some way from an agreement, and warned that a deal still may not be reached by the end of the current truce. Egypt, which brokered the three-day truce, has urged the warring sides to make every effort to reach "a comprehensive and permanent ceasefire".
Israeli media reported that Binyamin Netanyahu, the Israeli prime minister, had held separate meetings with hardline members of his coalition to convince them to accept the outlines of a deal.
Netanyahu has said that the military operation – code named Protective Edge – would continue until Israel was guaranteed "peace and security".
Daniel Nisman, a security analyst for the Levantine Group in Tel Aviv, said Israel was willing to engage with most Palestinian demands.
"It's really too early to call these talks yet," said Nisman. "Israel is really looking to play ball – with the exception of the airport. Many of us are quite puzzled about that – it's causing a lot of trouble here [in Israel]. It's seen as the equivalent of extortion."
The Israeli military source said that discussion of a port and airport should be carried out in peace negotiations with the Palestinians as a whole - the latest round of which was abandoned earlier this year – and not in Cairo.
Separately, it appears likely that Cairo will agree to ease restrictions on the Rafah border crossing between Gaza and Egypt's Sinai peninsula if Palestinian Authority forces loyal to President Mahmoud Abbas deploy along Gaza's border with Israel.
The negotiations are taking place at the headquarters of Egypt's general intelligence directorate, which has brokered past ceasefires between Hamas and Israel. The Palestinians and Israelis sit in different rooms and never see each other, officials attending the talks said.
There has been intense discussion in Cairo, officials in Gaza said, on whether issues such as the release of prisoners held in Israeli jails, most of whom are from Hamas, should be part of any overall deal or kept separate.
Hamas is demanding the release of about 100 prisoners, including dozens of members of parliament, possibly in return for the remains of two Israeli soldiers.
Another key issue is the flow of money into Gaza, currently blocked by Israel. It is believed that Israel had objected to a proposal from Qatar to move cash into Gaza to pay civil servants loyal to Hamas and for some reconstruction.
A further contentious issue is the import of cement and other building supplies, which Israel fears could be used to construct more cross-border tunnels.
