JERUSALEM - Prime Minister Ehud Olmert yesterday ruled out cease-fire talks with the Gaza Strip's Islamic Hamas rulers, vowing to press ahead with a "true war" against Palestinian extremist who attack southern Israeli communities with rocket and mortar fire.

Meanwhile, a cabinet minister confirmed that Israel has another plan to build hundreds of apartments in disputed East Jerusalem and the West Bank - touching off a new crisis in fledgling peace talks between Israel and the more moderate, West Bank-based government of Palestinian Authority President Mahmoud Abbas.

The Israeli military has struck hard in recent weeks against Hamas and other armed groups in Gaza. With troops appearing to make substantial gains, Olmert told his cabinet there were no plans to slow down.

"Operations against terrorists will continue as they have been conducted for many months," Olmert said. "There is no other way to describe what is happening in the Gaza Strip except as a true war between the Israeli army and terror groups."

He said Israel would continue to allow humanitarian aid into Gaza to protect the area's civilians.

Israel sealed its borders with Gaza after Hamas violently wrested control of the territory in June. Israel, which considers Hamas a terrorist group, has cut off most trade and reduced fuel shipments to the area.

Under heavy pressure from Israel's military gains and the economic embargo, Hamas has signaled readiness in recent days for a cease-fire. Several Israeli cabinet ministers have said the government should consider the offer.

But Olmert told his cabinet that there would be no cease-fire until Hamas renounced violence and recognized Israel's right to exist - conditions set by the Quartet of international peace makers. "This policy will not change," he said.

The Quartet consists of the United States, the European Union, the United Nations and Russia.

In Gaza, Islamic Jihad, the group responsible for most of the rocket fire, said there could not be a cease-fire until Israel "pays for its crimes."

Three rockets were fired at southern Israel yesterday. No injuries or damage were reported.

Israeli cabinet ministers, meanwhile, allocated more than $200 million over the next five years for a missile defense system, known as Iron Dome, being developed by the Israeli Defense Ministry and Raytheon Co., based in Waltham, Mass.

Israeli Defense Minister Ehud Barak, who has said Israel couldn't conduct a major withdrawal from the West Bank before such a system is in place, called it a "national emergency project." The syste is believed to be several years away from operation.

Amid the backdrop of Hamas truce overtures, Barak will travel to Egypt on Wednesday to meet with President Hosni Mubarak, Israeli security officials said. Egypt frequently acts as a mediator between Israel and Hamas.