Israeli forces are moving slowly into Gaza's most densely populated areas, reports say, as they continue air and ground attacks on Hamas militants.
Some reservists are in action on the ground, but the army denied escalating the war to a "third phase" - an all-out push on Gaza City and other towns.
Air strikes also continued through the day against 25 "targets" across the Gaza Strip, the Israeli military said.
Nearly 30 rockets or mortars were fired on Israel from Gaza.
Overnight on Sunday fewer air strikes were carried out - 12 compared with as many as 60 on previous nights.
Israeli spokesman Mark Regev said Hamas's military machine was taking "serious punishment" and that Israel was "advancing towards the end game". Hamas also insisted it was "approaching victory".
"Since the majority of the Hamas militants are pretty much in hiding in those places, mainly urban places, then we operate in those areas"
After meeting Egyptian President Hosni Mubarak, Middle East Quartet envoy Tony Blair said the elements were in place for a ceasefire agreement.
"I am hopeful we can put an agreement together but it's going to have to be worked on very hard and it's got to be credible," he told journalists.
Reservists 'in training'
Figures from Gaza for the number of people killed in fighting on Monday range from nine to 20.
Palestinian medical sources say 910 people have been killed in Gaza so far, of whom 292 were children and 75 were women. Israeli officials say 13 Israelis, including three civilians, have been killed.
Israel is preventing international journalists from entering the coastal strip, making it impossible to independently confirm such figures.
There were reports of fierce fighting around Gaza City ahead of the daily three-hour truce to allow aid deliveries to Gaza.
Analysis: Where is Israel heading?
Israeli military spokeswoman Maj Avital Leibovich said troops were continuing their advance into urban areas.
"Since the majority of the Hamas militants are pretty much in hiding in those places, mainly urban places, then we operate in those areas," she told the Associated Press.
Reservists are reported to be securing areas gained in the fighting.
Brig Gen Avi Benayahu, Israel's chief military spokesman, said thousands more - who would comprise a new, expanded phase in the ground operation if it was ordered - were still in training and had not been deployed.
Israel hopes the scale of its operation will greatly reduce the number of missiles fired from Gaza into southern Israel, while eroding support for Hamas.
Militants fired nearly 30 rockets and mortars from Gaza on Monday. One rocket struck a house in the town of Ashkelon, but no casualties were reported.
Mr Regev told the BBC that Israel's goals were "very minimalistic" and "purely defensive".
"We refuse, we refuse to return to a reality in which the Israeli civilian population has to live in that constant fear of an incoming Hamas rocket," he said.
Both Hamas and Israel have rejected last week's UN Security Council resolution calling for an immediate ceasefire.
Israeli Prime Minister Ehud Olmert said "nobody should be allowed to decide for us if we are allowed to strike".
GAZA CRISIS BACKGROUND
Meanwhile, senior Hamas leader and former Palestinian Prime Minister Ismail Haniya stated in a televised address from a secret location in Gaza that the group was "approaching victory".
"I tell you that after 17 days of this foolish war, Gaza has not been broken and Gaza will not collapse," he said.
Nevertheless, Mr Haniya said Hamas was ready to "deal positively with any initiative that stops the aggression against our people".
As the fighting continued, a spokesman for the charity Save the Children said it was impossible for aid workers to do their jobs.
"We need the violence to stop. We need the attacks to stop. It's only when that happens that we will be able to operate," Benedict Dempsey said.
Aid agencies say Gaza's 1.5 million residents are in urgent need of food and medical aid.
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