Israel killed 12 Palestinians on Sunday in its deepest thrust into Gaza City in two years of fighting, a show of strength underlining Prime Minister Ariel Sharon's tough security policy two days before an election. Dozens of armored vehicles backed by missile-firing helicopters rumbled from three directions into the Zaitoun neighborhood of Gaza City, a stronghold of the resistance Islamic group Hamas that has carried out dozens of resistance attacks.

During the raid, Palestinian resistance men fought back with assault rifles, explosives and anti-tank missiles, the occupation army said.

Palestinian sources said the dead included seven resistance men and a policeman and all the dead were men aged 18 and over.

About 40,000 Palestinians marched at a mass funeral for the 12. Some mourners fired in the air. Others vowed revenge.

"We will shed Jewish blood in Jaffa and Tel Aviv," Abdel-Aziz al-Rantisi, a top Hamas official, told reporters.

During the night-time incursion, Israeli occupation forces pulled to within 100 meters (yards) of the main Palestine Square.

Palestinian security officials said occupation troops stormed homes and metal workshops and destroyed one of the biggest factories in Gaza, a plant that made garbage containers, before withdrawing.

It was the strongest and deepest operation in Palestinian-ruled Gaza City since an uprising for an independent state began in September 2000.

A 74-year-old former general, Sharon is expected to lead his rightist Likud party to victory in Tuesday's general election.

He has made tough military action against Palestinian resistance activists the bedrock of his campaign.

Israel struck just as the Israeli newspaper Ha'aretz quoted senior occupation army officials as saying the peak of Israeli-Palestinian violence had passed and as Palestinian resistance groups met in Cairo to consider Egypt's proposal for a one-year unilateral cease-fire.

"Prime Minister Sharon is determined to end his election campaign with more Palestinian blood and with more destruction and with more aggression and escalation," Palestinian cabinet minister Saeb Erekat told Reuters.

In the West Bank, home to another more than two million Palestinians, an Israeli security source said the occupation army would clamp a blanket ban on Palestinian travel on Sunday until after the Israeli election.

PROLONGED OPERATION

In a television interview broadcast hours before the Gaza raid, Sharon promised never to compromise on Israeli security.

Israeli Defense Minister Shaul Mofaz said occupation troops destroyed 100 machines used to produce mortar bombs and Hamas-made Qassam rockets after Palestinians fired missiles on the southern Israeli town of Sderot a few days earlier.

Mofaz said Israel was considering a prolonged operation in the Gaza Strip , similar to its reoccupation of most West Bank cities, but that a decision had yet to be taken.

Three of the 12 were killed by missile fire, the rest from gunfire as clashes erupted between occupation troops and resistance men.

It was the highest Palestinian death toll in an Israeli operation since 16 people were killed in a raid in the Gaza town of Khan Younis in October.

Israeli snipers commandeered rooftops as tracer bullets streaked through the night sky and calls rang out from mosques for armed Palestinians to confront the Israelis. An Israeli missile slammed into a market, setting it ablaze.

"We were asleep, all of a sudden the ground was shaking...I saw tanks and froze in my place," said Ahmed Nemer of Zaitoun. "We squeezed in one room and awaited God's mercy. We could hear the soldiers shouting at neighbors to open doors and come out."

Israeli occupation troops launched a new raid into the northern Gaza town of Beit Hanoun early on Sunday, witnesses said.

An occupation army source said occupation soldiers were conducting searches after Palestinians fired a Qassam rocket from the area.

On Saturday, Israeli occupation forces blew up four bridges in the northern Gaza town of Beit Hanoun, cutting it off from Gaza City after five rockets fired from the area struck Sderot near Sharon's ranch but caused no serious injuries.

For the Palestinian groups meeting in Cairo, agreement to a one-year unilateral cease-fire seemed a long shot from the start.

One Palestinian official said the groups -- ranging from President Yasser Arafat 's mainstream Fatah to Islamist and Marxist factions -- wanted to make Egypt's proposal conditional on an Israeli commitment to end its violence.

At least 1,800 Palestinians and 698 Israelis have been killed since the revolt began in September 2000 after peace talks stalled.

PHOTO CAPTION

A Palestinian boy runs down a destroyed bridge in Beit Hanoun north of Gaza City January 25, 2003. Israeli troops blew up four bridges that connect Beit Hanoun to Gaza City and battled Palestinian gunmen Saturday in swift response to a rocket strike on a town near Prime Minister Ariel Sharon's ranch days before Israel's general election. (Andrea Comas/Reuters)