* Palestinians threaten to quit Cairo talks
* Hamas sees slim chances of success
* Gaza rockets, mortars target kibbutzim in Israel
(Adds mortar fire)
By Nidal al-Mughrabi and Allyn Fisher-Ilan
GAZA/JERUSALEM, Aug 10 (Reuters) - Israeli air strikes and shelling killed three Palestinians in Gaza on Sunday, medics said, in a third day of renewed fighting that has jeopardised international efforts to achieve a lasting ceasefire in a more than month-old conflict.
Palestinians kept up rocket and mortar fire that, since the last truce expired on Friday, has focused on kibbutzim, or collective farms, just across the border in what appeared to be a strategy of sapping Israel's morale without triggering another ground invasion of the tiny Gaza Strip.
The violence has become less intense than at the war's outset, down from more than 100 rocket salvoes a day including at major cities like Tel Aviv, which have not come under attack since Israel withdrew ground troops from Gaza on Tuesday.
Hamas, Gaza's dominant Islamist movement, and Israel were remained far apart on terms for any enduring halt to hostilities, with their rejection of each other's legitimacy adding to the obstacles.
Israel refused to send back officials to Egyptian-brokered talks in Cairo as long as militant attacks continued. The leader of the Palestinian delegation, which represents Hamas as well as the party of U.S.-backed President Mahmoud Abbas, threatened on Saturday to quit the talks unless Israel reversed that stance.
Hamas spokesman Sami Abu Zuhri said he saw "very slim" chances of success in renewing last week's 72-hour ceasefire.
Israeli Prime Minister Benjamin Netanyahu's cabinet was to address the crisis in its weekly session later on Sunday.
"We are at a crossroads and within two or three days we will see whether we are heading left toward an agreement, or right, toward escalation," Intelligence Minister Yuval Steinitz, a close ally of Netanyahu, told Channel 10 television on Saturday.
Air strikes and shelling killed three Palestinians, including a 14-year-old boy and a woman, raising the mostly civilian death toll given by Palestinian hospital officials to 1,893 since the July 8 launch of Israel's offensive to quell rocket fire out of the densely populated coastal territory.
Israel has lost 64 soldiers and three civilians to the war, whose toll on non-combatants in impoverished Gaza has drawn international alarm and condemnation.
Israeli tanks and infantry left the enclave on Tuesday after the army said it had completed its main mission of destroying more than 30 tunnels dug by guerrillas for cross-border attacks.
In renewed fighting since the end of a three-day truce on Friday, Israel has killed 14 Palestinians in air strikes.
Militants have fired more than 100 projectiles, mostly short-range rockets and mortar bombs, at Israel. Kibbutzim near Gaza's border have been the main targets.
NO "IRON DOME" FOR MORTARS
Though Israel's Iron Dome rocket interceptor does not work at such short ranges, there have been few casualties in the kibbutzim, largely because as many as 80 percent of their 5,000 residents fled before last week's ceasefire.
Some said on Sunday they would not return to their communities, which have long been symbols of Israel's pioneering spirit - an abandonment likely to pile pressure on Netanyahu.
Yossi Wagner, a member of the skeletal security team at Kibbutz Nahal Oz, doubted Netanyahu's promises to restore quiet.
"I heard the prime minister's various speeches, but we see the reality of the situation here," Wagner told Israel's Army Radio. "We have decided that at this stage we are not recommending that members return to the kibbutz."
The firm that makes Iron Dome, state-owned Rafael Armament Development Authority Ltd., is working on a version called "Iron Beam" that would use lasers to shoot down short-range mortars.
Rafael CEO Yedidia Yaari told Israeli television that he expected more government funding for Iron Beam's development and it was "very close" to completion. A defence industry source predicted deployment of the system in a year to 18 months.
Egypt, backed by American and European mediators, has made no visible progress towards restoring the ceasefire.
On Saturday, the head of the Palestinian delegation, Azzam Ahmed, said "we will leave Cairo tomorrow if it is confirmed to us they (Israelis) will not return" unconditionally.
Egypt is meeting separately with each party, given that Hamas rejects Israel's right to exist and Israel rejects Hamas as a terrorist organisation.
Hamas demands an end to a blockade of Gaza that both Israel and Egypt have imposed. Israel has resisted easing access to Gaza, suspecting Hamas could restock with weapons from abroad.
A sticking point has been Israel's demand for guarantees that Hamas would not use any reconstruction supplies sent to Gaza to construct more tunnels of the sort that Palestinian fighters have used to infiltrate Israel.
Ahead of the truce's expiration on Friday, Israel said it was ready to agree to an extension. Hamas did not agree.
(Additional reporting by Lin Noueihed in Cairo; Writing by Allyn Fisher-Ilan and Dan Williams; Editing by Jeffrey Heller and Mark Heinrich)
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