Rival Palestinian factions Hamas and Fatah have made progress towards agreeing a government of national unity, Egypt's president has said.
There were fierce exchanges around the Islamic University
Hosni Mubarak's comments came as fighting between members of the two groups continued in the Gaza Strip. At least one man was killed.
More than 20 people have been killed and 100 wounded in recent days.
The factions have repeatedly agreed to ceasefires, aimed at ending a bitter power struggle.
Palestinian Interior Minister Saeed Seyam said on Saturday that he and Rashid Abu Shbak of Fatah agreed "an immediate ceasefire, removing gunmen from the streets and rooftops of buildings and removing all the checkpoints".
However the BBC's Alan Johnston in Gaza said a very similar plan was declared on Friday but failed to halt the violence.
A Fatah security official was shot dead in fighting near the faction's Gaza headquarters.
President Mubarak, speaking at a joint news conference with visiting German Chancellor Angela Merkel, said he was working to "seal the crack" between the two sides.
"What is happening now is a problem between the Palestinians themselves, and it is impossible for the Palestinian side to sit with the Israelis, as they are still not agreeing with each other," he said.
Ms Merkel, who also heads Germany's presidency of the European Union, praised Egypt's efforts to broker a deal between the two factions.
She also said she hoped the Middle East quartet of the US, UN, EU and Russia would develop a coherent strategy for peace rather than working in isolation towards peace in the region.
Earlier Palestinian Prime Minister Ismail Haniya of Hamas and Fatah leaders appealed for calm.
The calls followed hours of violence which shattered the truce declared on Friday.
There were fierce exchanges of machine gun and heavier fire in the central area around the Islamic University, a Hamas stronghold.
University workers ran for cover as Hamas and Fatah gunmen traded fire from the rooftops of nearby buildings, the Associated Press news agency reported.
About 60 people have been killed since 25 January, in the deadliest factional unrest in recent months in Gaza.
Reports say Palestinian Authority President and Fatah chief Mahmoud Abbas and Hamas political chief Khaled Meshaal will meet in Saudi Arabia next Tuesday to try to end the fighting.
This would be a second meeting for the two leaders after a summit in Damascus on 21 January ended without a breakthrough.
Hamas and Fatah have been trying to form a unity government for months.
They are deadlocked over Hamas' rejection of international calls for it to recognise Israel.
Western donors have been withholding direct aid, resulting in a deep economic crisis in the Palestinian territories.