Israeli forces have briefly re-entered the Gaza Strip and clashed with Palestinian militants, with two people killed by gunfire, medics said.
The dead were reported to be a senior militant and a baby girl.
Israel stepped up military raids last week to counter rocket fire from Gaza. More than 100 Gazans were killed and Palestinian leaders suspended talks.
Palestinian Authority President Mahmoud Abbas said negotiations could only resume after calm was restored.
US Secretary of State Condoleezza Rice is winding up a trip to the region on Wednesday in which getting the Palestinians back to the negotiating table has been a key target.
Israel has suggested a truce over Gaza would give the militant Hamas movement, which opposes peace talks with Israel, a chance to regroup and rearm.
"Certainly the Palestinian-Israeli negotiations must be resumed, but after reaching calm," Mr Abbas told reporters.
Intensive efforts involving US and Egyptian diplomats were being expended to achieve a truce, he added.
On Tuesday, he urged Israel to end what he called its "aggression" in Gaza, which is under the control of Hamas, the rival of Mr Abbas's Fatah movement.
During Wednesday's raid in Khan Younis, the baby was killed by a ricocheting bullet, and a local Islamic Jihad leader was also killed, Palestinian health ministry officials said.
It is not clear who was responsible for baby Amira Aser's death. Press photographs showed her in a mortuary with wounds to the head.
There were no reports of fresh Palestinian rocket fire on southern Israel, after militants had fired dozens of the unguided missiles, including regular salvoes at the city of Ashkelon for the first time.
Ms Rice has been calling for the resumption of peace talks as soon as possible, saying they were necessary to counter Hamas's influence.
She also urged Israel to take more care not to kill civilians in its military operations.
Ms Rice met Israeli Prime Minister Ehud Olmert late on Tuesday and held morning talks with Palestinian negotiators Saeb Erekat and Ahmed Qurei.
Later she held talks with Foreign Minister Tzipi Livni and Defence Minister Ehud Barak before leaving Israel.
Asked about Mr Abbas's comments that a resumption of the talks hinged on reaching a "calm" in Gaza, Ms Rice said it was "not a condition".
"I've been informed by the parties that they intend to resume the negotiations and that they are in contact with one another as to how to bring this about," she said after her meeting with Ms Livni.
Analysts are sceptical that a deal on core issues - Jerusalem, Palestinian refugees, borders and security - can be achieved by the end of 2008, as envisioned by the US-sponsored peace process launched at Annapolis, Maryland, last November.
On Tuesday, US President George W Bush said he was still optimistic and that there was "plenty of time to get a deal done" in the 10 months before he left office.
Meanwhile, Israel's top political and security officials have also been discussing policy towards Gaza.
Reports say the officials are considering several options including a large-scale ground operation, and a re-occupation of northern Gaza.