* Israel says suspends Gaza attacks but may abandon Egyptian-proposed truce
* Volleys of rockets fired from Gaza after truce starting time
* Hamas armed wing vows to fight on
* Hamas leader in Cairo says group undecided over truce (Adds Netanyahu, Kerry comments)
By Nidal al-Mughrabi and Jeffrey Heller
GAZA/JERUSALEM, July 15 (Reuters) - Hamas militants fired volleys of rockets from the Gaza Strip on Tuesday, drawing a threat by Israel to abandon an Egyptian-proposed truce it had unilaterally accepted.
Israel said earlier in the day it had ceased fire under the plan to end a week of cross-border hostilities, while a top Hamas official in Cairo said the Islamist movement was still considering it.
But Hamas' armed wing, the Izz el-Deen al-Qassam Brigades, rejected the ceasefire, saying its battle with Israel would "increase in ferocity and intensity".
Under the blueprint announced by Egypt - Gaza's neighbour and whose military-backed government has been at odds with Hamas - a mutual "de-escalation" of fighting was to begin at 9 a.m. (0600 GMT), with hostilities ceasing within 12 hours.
The Israeli military said more than 35 rockets had been fired from Gaza since 9 a.m. and live television showed the Iron Dome anti-missile system intercepting several of them over the port city of Ashdod, where a factory was hit. Emergency services said no one was hurt.
Sirens also sounded in areas up to 130 kilometres (80 miles)north of the Gaza Strip. The Qassam Brigades claimed responsibility for some of the rocket launchings.
Gaza health officials said at least 184 Palestinians, most of them civilians, have been killed in eight days of fighting.
Prime Minister Benjamin Netanyahu said Israel would respond strongly if the rockets continued to fly in the worst flare-up of fighting with the Palestinians in two years.
"If Hamas rejects the Egyptian proposal and the rocket fire from Gaza does not cease - and that appears to be the case now - we are prepared to continue and intensify our operation to protect our people," he told reporters.
Moussa Abu Marzouk, a top Hamas official who was in Cairo, said the movement, which is seeking a deal that would ease border restrictions imposed by both Egypt and Israel, had made no final decision on the proposal.
Netanyahu said that if upheld, the ceasefire would provide an opportunity to demilitarise the Gaza Strip, where militants have large arsenals of rockets and have built cross-border tunnels for raids into Israel.
Netanyahu's security cabinet approved the Egyptian offer at Israeli military headquarters in Tel Aviv. Political sources said the vote in the forum was 6-2.
Sami Abu Zuhri, a Hamas spokesman in Gaza, said earlier on Tuesday that demands the movement has made must be met before it lays down its weapons.
Other Palestinian militant groups - Islamic Jihad, the Popular Front for the Liberation of Palestine and the Democratic Front for the Liberation of Palestine - also said they had not yet agreed to the Egyptian offer.
"We urge all parties to accept the proposal," U.S. Secretary of State John Kerry said in a statement that welcomed Israel's decision to do so.
Amos Gilad, a senior Israeli defence official and envoy to Cairo, told Israel's Army Radio that Hamas had been weakened by the air and sea bombardment of Gaza, having tried "every possible means of striking at Israel."
Hundreds of rockets fired at Israel have caused no fatalities, largely due to Iron Dome. But the strikes have disrupted life across the country and sent people rushing into shelters.
Israel had mobilised tens of thousands of troops for a threatened Gaza invasion if the rocket salvoes persisted.
"We still have the possibility of going in, under cabinet authority, and putting an end to them (the rockets)," Gilad said.
In overnight attacks, Israel said it had bombed 25 sites in Gaza. Palestinian medical officials said a 63-year-old man and a 52-year-old woman were killed.
CEASEFIRE TERMS
Under the ceasefire proposal announced by Egypt's Foreign Ministry, high-level delegations from Israel and the Palestinian factions would hold separate talks in Cairo within 48 hours to consolidate the ceasefire with "confidence-building measures".
The surge in hostilities over the past week was prompted by the murder last month of three Jewish seminary students in the occupied West Bank and the revenge killing on July 2 of a Palestinian youth in Jerusalem. Israel said on Monday three Jews in police custody had confessed to killing the Palestinian.
Hamas leaders have said a ceasefire must include an end to Israel's blockade of Gaza and a recommitment to a truce reached in an eight-day war there in 2012. Hamas also wants Egypt to ease restrictions at its Rafah crossing with Gaza imposed after the military toppled Islamist president Mohamed Mursi last July.
The Egyptian proposal made no mention of Rafah or when restrictions might be eased.
Hamas has faced a cash crisis and Gaza's economic hardship has deepened as a result of Egypt's destruction of cross-border smuggling tunnels. Cairo accuses Hamas of aiding anti-government Islamist militants in Egypt's Sinai peninsula, an allegation the Palestinian group denies.
Hamas has said it also wants the release of hundreds of its activists arrested in the West Bank while Israel searched for the three missing teens.
The proposed truce also made no mention of the detainees.
The Arab League said in a statement it welcomed the Egyptian initiative "to protect the lives of the innocent".
Palestinian President Mahmoud Abbas, who reached an agreement with Hamas in April that led to the formation of a unity government last month, urged acceptance of the proposal, the official Palestinian news agency WAFA said. (Additional reporting by Allyn Fisher-Ilan, Maayan Lubell in Jerusalem, Noah Browning in Gaza and Michael Georgy and Yasmine Saleh in Cairo; Writing by Jeffrey Heller and Dan Williams, editing by John Stonestreet)
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