GAZA - Israeli troops and tanks left the Gaza Strip on Saturday, witnesses said, ending an incursion into the Hamas-ruled enclave made after the bloodiest clash in 14 months killed two soldiers and at least one Palestinian.
The violence underscored deadlock in US-mediated talks between Israel and Palestinian President Mahmoud Abbas, whose peace strategy has been sapped by Hamas hostility along with continued Israeli settlement construction on occupied land.
The impasse had triggered sporadic rocket attacks this month from Gaza which drew Israeli airstrikes. On Friday, Palestinians ambushed soldiers who, the army said, had crossed the border to dismantle a mine. Two infantrymen were killed and two wounded.
The skirmish -- in which the Israelis said they killed two Palestinian gunmen -- was the fiercest since the three-week Gaza war of early 2009. Some 1,400 Palestinians, mainly civilians, and 13 Israelis, mainly troops, died in that conflict.
Hamas, having largely held fire since, announced that its men took part in the border clash, calling it self-defence. That drew veiled threats of escalation from Israel.
"We have been used to seeing breakaway (Palestinian) groups doing the firing, and Hamas trying to calm things down. Possibly it is loosening its grip, for all sorts of reasons," Defence Minister Ehud Barak told Israeli television on Friday.
"Should that indeed prove to be the case, then there will also be ramifications for Hamas," he said, but added: "We have no interest in returning the region to what was in the past."
Israel captured Gaza, along with the West Bank and East Jerusalem, in a 1967 war. It withdrew unilaterally from Gaza in 2005 but has expanded Jewish settlements in the West Bank and East Jerusalem. Palestinians want a state in all the territories.
Resisting US pressure in what analysts called a bruising encounter with President Barack Obama in Washington this week, Prime Minister Benjamin Netanyahu said Israel would not stop building in West Bank areas it annexed to East Jerusalem.
Netanyahu vowed to find a way out of the faceoff, but a Friday meeting of his senior cabinet convened to discuss confidence-building measures ended with no breakthroughs.
"Israeli construction policy in Jerusalem has remained the same for 42 years and isn't changing," said spokesman Nir Hefez.
Four Palestinians have died in West Bank clashes with Israeli forces this month. Obama wants Israel to halt settlement in East Jerusalem, an issue that created new friction when a plan to build 1,600 more housing units was published as US Vice President Joe Biden visited to urge talks.
But Friday's cabinet meeting adjourned without decisions.
"The prime minister set further discussion in the forum for the coming days, as well as continued contacts with the US administration in order to reach an agreed path for getting the diplomatic process moving," his aide Hefez said.
As the Israeli force left eastern Khan Younis, the site of Friday's fighting, Gazan medical officials came in to search for casualties. They said they knew of a 23-year-old man who had been killed and at least five Palestinian civilians wounded.