(Fixes transposed surname in 8th paragraph)
* Hamas says studying proposal for new 72-hour ceasefire
* Israeli prime minister warns of protracted conflict
* Gaza rockets, mortars target southern Israeli farms
* 1,893 Palestinians, 67 Israelis killed in month of war
By Nidal al-Mughrabi and Jeffrey Heller
GAZA/JERUSALEM, Aug 10 (Reuters) - Israel said on Sunday it was prepared for protracted military action in Gaza and would not negotiate under rocket fire as Egypt crafted a new truce plan to try to keep indirect Israeli-Palestinian talks alive.
Israeli air strikes and shelling killed three Palestinians in Gaza, including a boy of 14 and a woman, medics said, in a third day of renewed fighting that has jeopardised efforts by Egypt, which also borders the enclave, to end the month-old hostilities.
Since a three-day truce expired on Friday, Palestinian rocket and mortar salvoes have focused on Israeli kibbutzim, or collective farms, just across the border in what appeared to be a strategy of sapping the Jewish state's morale without triggering another ground invasion of the tiny Gaza Strip.
A month of war has killed 1,893 Palestinians and 67 Israelis while devastating wide tracts of small, densely populated Gaza. But international pressure for a ceasefire has been weaker than in earlier rounds of Israeli-Palestinian conflict given other international security crises distracting major powers.
Hamas spokesman Sami Abu Zuhri told Reuters that Egypt had presented a new ceasefire plan to keep negotiations going. Israeli representatives had flown home on Friday, hours before the previous truce ended, and Palestinian delegates threatened to leave unless they came back.
An Egyptian Foreign Ministry source said the new 72-hour ceasefire plan was still being crafted and it was too early to say if a deal would result.
"The Palestinian delegation will give its position in light of the Egyptian efforts and developments within hours," Azzam Ahmed, an official from the mainstream Fatah movement who is leading the Palestinian team, told reporters in Cairo.
Ahmed accused Israel of intransigence and said the Palestinians were willing to continue talks aimed at achieving a lasting truce and facilitating aid to the devastated enclave, where thousands of homes lie in ruin.
In Tel Aviv earlier, Prime Minister Benjamin Netanyahu said "Israel will not negotiate under fire".
"At no stage did we declare (Israel's military offensive) was over," he said. "The operation will continue until its objective - the restoration of quiet over a protracted period - is achieved," he said in public remarks at the weekly cabinet meeting. "I said at the beginning and throughout the operation - it will take time, and stamina is required."
However, the violence over the past three days has been less intense than at the war's outset, with reduced firing on both sides. Israel withdrew ground forces from Gaza on Tuesday.
BLOCKADES
Egypt is meeting separately with each party, given that Hamas, the dominant movement in Gaza, rejects Israel's right to exist and Israel regards the group as a terrorist organisation.
Before the truce ran out on Friday, Israel said it was ready to agree to an extension. Hamas did not agree, demanding an end to an economically stifling blockade of the coastal enclave that both Israel and Egypt, which regards the Islamist movement as a security threat, have imposed.
Israel has resisted easing access to Gaza, suspecting Hamas could then 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 build more tunnels of the sort that Palestinian fighters have used to infiltrate the Jewish state.
Gaza hospital officials say the Palestinian death toll has been mainly civilian since the July 8 launch of Israel's military campaign to quell Gaza rocket fire.
Israel has lost 64 soldiers and three civilians to the war, where losses of non-combatants in Gaza and the destruction of thousands of homes have drawn international 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 16 Palestinians in air strikes. Militants have fired more than 100 projectiles, mostly short-range rockets and mortar bombs, at Israel.
Though Israel's Iron Dome rocket interceptor does not work at such short ranges - a version called "Iron Beam" is being developed to shoot down mortars - there have been few casualties, largely because as many as 80 percent of the border kibbutzim's 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 raise pressure on Netanyahu.
"I heard the prime minister's various speeches, but we see the reality of the situation here," Yossi Wagner, a member of the skeletal security team at Kibbutz Nahal Oz, told Israel's Army Radio. "We have decided that at this stage we are not recommending that members return to the kibbutz."
Inside a U.N.-run school in Gaza where at least 2,500 Palestinians have taken shelter, Bashir Abed sat in the shade at a classroom desk, watching his infant son playing nearby.
"I say to the delegation (in Cairo), if you do not secure the demands of the people, you have to leave. Israel does not want peace, Israel wants to give us only one percent of our rights. Israel is stalling," Abed said.
In the West Bank, where the Gaza war has stoked tensions, Israeli soldiers killed an 11-year-old Palestinian boy during a clash with rock-throwing protesters. The boy's uncle said he was shot even though he was not taking part in the disturbances.
An Israeli military spokeswoman said soldiers shot at "instigators (of the disturbance), identifying a hit". She said it appeared that "unfortunately, a Palestinian boy was killed by the fire" and the circumstances were under review.
(Additional reporting by Lin Noueihed in Cairo, Dan Williams and Allyn Fisher-Ilan in Jerusalem, Ali Sawafta in the West Bank; Writing by Jeffrey Heller; Editing by Mark Heinrich)
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