Defence Minister Shaul Mofaz told military radio that the government would now consider expelling Palestinian Authority Chairman Arafat as he was an obstacle to the peace process.

"Arafat is a very major obstacle for (Palestinian prime minister) Mahmud Abbas and for the whole political process," he said.

"We made a historic mistake by not expelling him two years ago but we are going to address this issue in the short-term, without doubt before the end of the year."

Mofaz said the government had to "find the right moment" before making such a move without damaging the more moderate Abbas.

Arafat has been effectively confined to his headquarters in the West Bank town of Ramallah by the Israeli army for the past 20 months.

Mofaz told cabinet colleagues Monday the security establishment had declared "an all-out war against Hamas and other terrorist elements, including continuous strikes at the organization's leaders", a government statement said.

The army chief of staff, General Moshe Yaalon, was cited by the radio as saying the army was ready to spring into action if given the order to launch a "large scale operation".

Mofaz confirmed Tuesday that Israel was ready to "increase the pressure" against Hamas after six air strikes in 13 days against the radical Islamic group in Gaza.

"We have opened a new chapter in the battle against the terrorist organisations. As the Palestinian Authority is not acting against these organisations we will take care of them," he added.

One Hamas activist was killed in an Israeli helicopter strike in Gaza City on Monday afternoon and 17 people were injured when three rockets slammed into a car as it was being driven near government offices in the centre of Gaza City.

Two members of Hamas' armed wing managed to escape after the strike, which wounded four children and one woman, witnesses and sources said.

Hamas' armed wing, the Ezzedine al-Qassam Brigade, condemned the "ugly crime" in a statement Tuesday and said its "answer will be very soon".

Palestinian medical sources also said Tuesday that a 10-year-old girl who was injured in a botched Israeli air strike in northern Gaza a week ago had died of her injuries.

The Israelis decided to take matters into their hands in the wake of a massive Hamas suicide bomb in Jerusalem two weeks ago which they say was a direct result of the Palestinian authorities' failure to take on hardline groups.

Apart from the targeted killings in Gaza, they have arrested scores of wanted militants in the Palestinian territories. Five more were arrested overnight in the West Bank towns of Nablus and Hebron, an army spokesman said.

Abbas has pledged to take action against hardline groups such as Hamas and Islamic Jihad, including confiscating their weapons, but his room for manoeuvre has been limited by a scrap with Arafat over control of the security services.

The upsurge in violence has stalled all progress in the roadmap for peace, a peace plan sponsored by Russia, the United States, the United Nations and the European Union which aims to establish a Palestinian state by 2005.

Israel froze all contacts with the Palestinians after the Jerusalem bomb.

Senior Russian diplomat Yury Fedotov, who held talks in the region last week, said Tuesday that the two sides need outside help to resolve their conflict.

"(They) are unable to resolve the tensions (alone) and as a result are only building up the cycle of violence, making it very difficult to stop," deputy foreign minister Fedotov told ITAR-TASS news agency.