* Under Egyptian proposal, both sides will hold their fire from 0500 GMT
* Israeli negotiators expected soon to join negotiations in Cairo for lasting deal
* Sceptics point at several failed truce attempts, and distance in sides' positions (Adds U.S. State Department comment, details on Hamas demands)
By Nidal al-Mughrabi, Lin Noueihed and Allyn Fisher-Ilan
GAZA/CAIRO/JERUSALEM, Aug 5 (Reuters) - Israel and Islamist Hamas were expected to hold their fire for three days starting on Tuesday, under terms of an Egyptian-brokered truce, while launching negotiations to cement a long-term deal to end a four-week Gaza war.
The ceasefire was the latest of several failed attempts to stop what has been the worst Israeli-Palestinian fighting in two years.
Gaza officials say the war has killed 1,834 Palestinians, most of them civilians. Israel says 64 of its soldiers and three civilians have been killed since fighting began on July 8 after a surge in cross-border rocket salvoes from Gaza.
Mark Regev, a spokesman for Israeli Prime Minister Benjamin Netanyahu, said late on Monday that "from tomorrow morning at 8 a.m. (0500 GMT) Israel will honour the ceasefire as agreed to, and negotiated through the Egyptians."
Israeli media said Netanyahu had won the approval of senior ministers for the plan in a series of telephone calls on Monday.
Regev, citing several failed attempts to achieve a ceasefire in the past month, added that "if Hamas violates the ceasefire, so Israel is prepared to respond."
Israel was expected to send several delegates to join in negotiations in Cairo to cement a longer term deal during the course of the truce, an Israeli official said, speaking on condition of anonymity.
Palestinian groups, including envoys of Hamas and Islamic Jihad, were already in Cairo, where they met the head of Egyptian intelligence on Monday to present demands for ending the violence, which has displaced more than one quarter of Gaza's 1.8 million people and seen 3,000 homes destroyed.
Hamas spokesman Sami Abu Zuhri said the Islamist group had also informed Egypt "of its acceptance of a 72-hour period of calm," beginning on Tuesday.
The U.S. State Department praised the truce and urged the parties to "respect it completely." Spokeswoman Jen Psaki added that Washington would continue in its efforts to help the sides achieve a "durable sustainable solution for the long term."
Efforts to cement the ceasefire into a lasting truce could prove difficult with the sides far apart on key demands, and each rejecting the other's legitimacy. Hamas rejects Israel's existence, and vows to destroy it, while Israel denounces Hamas as a terrorist group with whom it eschews any ties.
In addition to the truce, Palestinians have demanded a withdrawal of Israeli forces from Gaza, an end to the blockade of the impoverished enclave and release of prisoners including those arrested in a June crackdown when three teenagers were kidnapped and killed, demands Israel has resisted in the past.
An Israeli official who declined to be named suggested Israel would pull its forces out of Gaza if Tuesday's truce held, saying:
"We agree to begin implementing the Egyptian initiative. If the ceasefire is upheld there will be no need for any presence of (Israeli) forces in the Gaza Strip."
ISRAEL DEMANDS TO DEMLITARISE GAZA
But Netanyahu also wants to disarm Hamas and demilitarise the coastal territory, stripping militants who launched more than 3,300 rockets and mortars at Israel this past month of these arsenals, demands that the Islamists have thus far rejected.
"For Israel the most important issue is the issue of demilitarisation. We must prevent Hamas from rearming, we must demilitarise the Gaza Strip," Regev told Reuters television.
Since the fighting began, several previous truces barely held, with each side refusing to accept terms put by the other. This time Egypt's initiative could yield results if the parties can convene to negotiate a longer-term deal.
Regev said Israel had accepted Egypt's terms weeks before Hamas, and expressed a wish that the truce would last. "I hope this time we see the ceasefire work that's good for everybody," he said.
Egypt has positioned itself as a mediator in successive Gaza conflicts but, like Israel, its current ruling administration opposes Hamas, and it has struggled to seal a deal to end the latest fighting.
Israel had declined earlier in the week to send a delegation to Egypt for truce talks, raising doubts a deal was achievable.
A Palestinian official affiliated with one of the militant factions said a temporary ceasefire would help open the door to more comprehensive negotiations.
In addition to the loss of life, the war has cost both sides economically. Gaza faces a massive $6 billion price tag to rebuild devastated infrastructure. Israel has lost hundreds of millions of dollars in tourism, other industry, and fears cuts in overall economic growth this year as well.
The violence showed signs of abating early on Tuesday, with few reported incidents. Two rockets were fired at a southern Israeli city, Ashkelon, and Israel's Iron Dome interceptor shot them down. There were no casualties.
Israel has already begun to wind down its offensive, with media reports saying on Monday the army had completed the main objective of the ground assault, the destruction of cross-border infiltration tunnels from Gaza.
But a previous truce attempt ended in failure only on Monday, Palestinians said, charging Israel had bombed a refugee camp in Gaza City, killing an eight-year-old girl and wounding 29 other people, disrupting what was supposed to have been a seven-hour humanitarian ceasefire.
An Israeli military spokeswoman disputed this, saying Israel had withheld aerial fire for seven hours on Monday, in a move to free up aid supplies and allow some of the hundreds of thousands of Palestinians displaced by the war to go home.
Media in Britain reported that a British aid worker was killed on Sunday during an Israeli strike in Rafah while he was delivering supplies to a hospital. The British Foreign Office said it was looking into the report. (Additional reporting by Eric Beech in Washington, Ori Lewis in Jerusalem, Yasmine Saleh in Cairo; Writing by Allyn Fisher-Ilan; Editing by Ken Wills)