Israeli Prime Minister Ehud Olmert has refused to release any Palestinian prisoners in exchange for information about an abducted Israeli soldier.
Israeli troops have continued to assemble on the border
He was responding to a demand from three militant groups that women and youths be freed from Israeli jails in return for news on Gilad Shalit.
Those making the demand included the armed wing of governing party Hamas.
Mr Olmert also threatened military action to free the soldier seized in clashes on the Gaza border on Sunday.
US Secretary of State Condoleezza Rice has urged Israel to give diplomacy a chance to win the release of the tank gunner.
She said a concerted international effort was under way to secure his freedom and appealed for calm rather than an escalation of the situation.
'Time running out'
Mr Olmert has put the army on standby for an extensive military operation against Palestinian militants to free Cpl Shalit and Israeli tanks and armoured vehicles have been assembling on the Gaza border.
"The question of freeing [Palestinian] prisoners is in no way on the Israeli government agenda," Mr Olmert said during a speech in Jerusalem.
The 19-year-old soldier was seized by militants on Sunday
"There will be no negotiations, no bargaining, no agreements."
Mr Olmert said that Israel would not allow itself to become the victim of "Hamas-terrorist blackmail", warning that "a large-scale military operation is approaching".
"The time is approaching for a comprehensive, sharp and severe Israeli operation. We will not wait forever," Mr Olmert said.
Cpl Shalit is believed to have been taken captive by militants who tunnelled out of Gaza to attack the army post at Kerem Shalom.
Two Israeli troops and two militants were killed during the raid.
Hamas political leaders have denied any knowledge of the tank gunner's whereabouts - but they have called for him to be well treated.
The faxed statement calling for the prisoners' release was signed by the Popular Resistance Committees umbrella group, Hamas's Izzedine al-Qassam Brigades, and the previously unknown Army of Islam.
It said: "The Occupation [Israel] will not get any information about its missing soldier until it commits to the following:
"First, the immediate release of all women in prison. Second, the immediate release of all children in prison younger than 18."
Israel is believed to have incarcerated about 100 women and 300 under-18s among the 9,000 Palestinian prisoners it is holding in its jails.
Intense diplomatic efforts have been under way since the soldier's disappearance, including mediation by an Egyptian delegation in the Gaza Strip.
This was noted by the kidnappers themselves, who said their demands were "in response to various mediation efforts and other intervention".
The statement did not confirm whether the three groups were holding Cpl Shalit captive themselves.
Israeli officials say they hold Palestinian Authority President Mahmoud Abbas and Prime Minister Ismail Haniya, of Hamas, responsible for the 19-year-old Israeli's safety.
Correspondents say the crisis could spoil efforts to bind Hamas into a plan implicitly recognising Israel, and may expose divisions between hardline and more pragmatic Hamas elements.