"If conditions will ripen and we think there will be a diplomatic solution that will ensure a better security reality in the south, we will consider it. But at the moment, it's not there," an aide quoted Prime Minister Ehud Olmert as saying.
"We didn't start this operation just to end it with rocket fire continuing as it did before it began," Olmert said, according to the aide. "Imagine if we declare a unilateral ceasefire and a few days later rockets fall on (the town of) Ashkelon. What will that do to Israel's deterrence?"
Foreign pressure has grown on both sides to end hostilities.
France had proposed a 48-hour truce that would allow in more humanitarian aid for Gaza's 1.5 million residents. Olmert made the remarks - which did not rule out a ceasefire in the future - to his security cabinet, which had rebuffed the plan.
Hamas said it was prepared to study proposals for a ceasefire.
"We are for any initiative that will bring an immediate cessation to the aggression and lift the siege entirely," Hamas official Ayman Taha said, referring to Israel's blockade of the Gaza Strip, territory controlled by the Islamist group.
Diplomats said the deadliest conflict in the Gaza Strip in four decades appeared close to a tipping point after four days of air strikes that have killed 393 Palestinians, at least a quarter of whom, U.N. figures showed, were civilians.
Palestinian medical officials revised the number of wounded to 1,650 after figures arrived from medical centres that had not reported their casualty statistics earlier. Three Israeli civilians and a soldier have been killed by rockets.
Along the heavily-fortified border fence, Israeli tank crews prepared for battle while Islamist militants, hiding as little as a few hundred yards (meters) away, laid land mines and other booby traps should a ground war break out.
Inside Gaza, for the first time since the fighting began, many residents ventured outside their homes to stock up on supplies, taking advantage of a lull in Israeli air strikes that have turned Hamas government buildings into piles of rubble.
Some children played happily in the rain, as one parent remarked they were finally able to run free after what he called three days of "house arrest".
Despite the pressure from foreign powers for an end to the violence, public anger in Israel over the widening of the rocket attacks to include Beersheba, 40 km (24 miles) from Gaza, could prompt the government to hit Hamas even harder.
Israeli officials said they were open to amendments to the French proposal and alternatives being put forward by international parties.
Cabinet ministers, however, approved the mobilisation of 2,500 army reservists, expanding on an earlier call-up of 6,500 soldiers for the garrison on the Gaza border, officials said.
Israel said it was doing its part to let humanitarian supplies into Gaza despite the rocket fire. More than 100 truckloads of food and medicine were expected to enter on Wednesday, defence official Peter Lerner said.
With Palestinians increasingly enraged over the Gaza offensive, aides said President Mahmoud Abbas would ask the U.N. Security Council to pass a resolution calling for an immediate ceasefire.
Arab foreign ministers met in Cairo to seek a common position in response to the Israeli attacks, but the Arab world is deeply divided in its attitude towards Hamas, which took over the Gaza Strip last year after fighting a brief civil war with the secular Fatah faction loyal to Western-backed Abbas.
The diplomatic moves coincided with an escalation in Hamas rocket fire deeper inside Israel.
At least four of the longer-range Grad rockets hit Beersheba, the city Israel calls the capital of the Negev, its southern region. One struck a school that was empty. Municipal authorities had cancelled classes after rockets landed in Beersheba on Tuesday evening for the first time.
Other long-range rockets hit the southern coastal city of Ashkelon. Dozens of short-range rockets pelted border towns.
Israeli aircraft had carried out six air strikes in the Gaza Strip so far on Wednesday, the lowest number since the campaign began, targeting smuggling tunnels on the Gaza-Egypt frontier and Hamas government offices in Gaza City. Palestinian medics said four people - two militants, a doctor and a paramedic - were killed.
Rain over the past few days and fresh showers on Wednesday could delay any push soon by Israeli tanks into the territory and also limit air operations. Forecasters predicted several days of clear skies starting late on Thursday.
Gaza City taxi driver Mazen Ahmen called the rain "a truce imposed by God".
Basic food supplies in the Gaza Strip were running low and power cuts were affecting much of the territory. Hospitals were struggling to cope with the high number of casualties from the offensive.
Olmert's centrist government launched the operation six weeks before a Feb. 10 election that opinion polls predict the opposition right-wing Likud party will win, with the goal of halting rocket attacks by militants in Gaza.
The current violence erupted after a six-month ceasefire brokered by Egypt expired on Dec. 19 and Hamas intensified rocket attacks from the Israeli-blockaded Gaza Strip.
France said it would host Israeli Foreign Minister Tzipi Livni on Thursday and an Israeli official said French President Nicolas Sarkozy planned to visit Jerusalem next Monday.
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