Israeli ministers are due to vote on a unilateral ceasefire proposal, amid signs of diplomatic movement on the three-week conflict in Gaza.

Government spokesman Mark Regev said he thought Israel may have achieved enough to allow a ceasefire.

Israel and the US signed a deal to halt the smuggling of arms into Gaza as Cairo continued its mediation efforts.

Israeli warplanes bombed Gaza again just before dawn, with heavy explosions south of Gaza City.

A BBC correspondent who managed to enter southern Gaza on Friday saw evidence of much collateral damage from recent bombing.

Christian Fraser says the situation for Palestinian families there is tough, with food and electricity supplies limited and no running water.

Movement towards a negotiated solution has been slow but there are signs that significant progress has been made during the past 24 hours, the BBC's Adam Mynott reports.

Since Israel launched its offensive on 27 December to end rocket attacks against its people, nearly 1,170 people are thought to have been killed.

Hamas talks

The Israeli prime minister's office said that as a result of "significant progress" at talks between Israeli officials and Egypt's intelligence chief, Omar Suleiman, a draft unilateral ceasefire would be discussed by Mr Olmert and his Defence Minister, Ehud Barak.

"Following the discussion, the cabinet for national security will be convened on Saturday evening to decide whether it should be adopted," it added.

Earlier, Israeli Foreign Minister Tzipi Livni said in Washington that Israel would have to suspend any ceasefire if Hamas continued to fire rockets.

Signing the deal on preventing arms-smuggling, US Secretary of State Condoleezza Rice said she hoped it would ensure Gaza could "never again be used as a launch pad" for attacks on Israel.

Mr Regev told BBC News that the foundations for announcing a ceasefire seemed to be in place.

"I think we're seeing the pieces of the puzzle fall into place and we see the foundations for what we see as a long-term calm in the south, based on cessation of fire and, of course, absence of all arms smuggling to Hamas," he said.

Hamas leaders have returned to Cairo for further talks.

They insist that a ceasefire agreement is built on the withdrawal of Israeli forces from Gaza within a week and an immediate end to the blockade of the Gaza Strip.

One Hamas leader, Khaled Meshaal, has said the group will not accept Israeli conditions for a ceasefire.

"Despite all the destruction in Gaza, I assure you we will not accept Israel's conditions for a ceasefire," he said in Doha, Qatar.

Western diplomats say a pact underpinning any truce may be signed in Cairo this weekend between Israeli Prime Minister Ehud Olmert, Palestinian Authority President Mahmoud Abbas and Egyptian President Hosni Mubarak.

The UN General Assembly in New York has overwhelmingly passed a resolution calling for an immediate and durable ceasefire in Gaza, leading to a full withdrawal of Israeli troops.

Earlier, after meeting Palestinian Authority leaders in the West Bank, UN Secretary General Ban Ki-moon called on Israel to end the fighting immediately.

New air strikes

Israeli military officials say 40 air strikes on Gaza on Thursday night targeted smuggling tunnels, rocket launching points, weapons stores and a militants' training camp.

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The bodies of 23 people were later recovered in the Tel al-Hawa district of Gaza City, medics said.

Militants fired about 10 rockets into Israel on Friday, causing no injuries, the Israeli army said.

Health officials in Hamas-controlled Gaza say at least 1,155 Palestinians have been killed and 5,015 wounded since Israel launched its offensive.

Thirteen Israelis - three of them civilians - have died, while 233 soldiers have been wounded, Israeli officials say.

A teenager reportedly died during anti-Israeli protests in the West Bank on Friday.