* Rocket fire from Gaza stops for eight hours
* Resumes after start of Israeli workday
* Israel keeps up air strikes in Gaza
* Truce mooted by Hamas, Netanyahu convenes ministers
* Israel says first wants to attain operational goals (Adds defence minister, updates death toll)
By Nidal al-Mughrabi and Jeffrey Heller
GAZA, May 20 (Reuters) - Diplomatic moves towards a ceasefire in the Israeli-Palestinian conflict gathered pace on Thursday after U.S. President Joe Biden called for a de-escalation, but Israel threatened to step up strikes on Gaza as Hamas rocket fire resumed after a pause.
After a senior Hamas official predicted a truce within days, an Egyptian security source - whose country has been mediating between the sides - said they had agreed in principle to a mutual halt in hostilities but details needed to be worked out.
Israeli Prime Minister Benjamin Netanyahu scheduled a 7 pm (1600 GMT) meeting of his security cabinet to discuss options.
Rocket attacks on Israel stopped for eight hours on Thursday - the 11th day of hostilities - before resuming against communities near the Gaza border and the city of Beersheba.
Israel continued air strikes in Hamas-run Gaza, saying it wanted to destroy the Islamist militant group's capabilities and deter it from future confrontation after the current conflict.
"We're fully prepared to expand the campaign to whatever degree necessary. We're turning the clock back on Hamas and it won't be able to recover," Defence Minister Benny Gantz said.
Since the fighting began on May 10, health officials in Gaza say 232 Palestinians, including 65 children and 39 women, have been killed and more than 1,900 wounded in aerial bombardments. Israel says it has killed at least 160 combatants in Gaza.
Authorities put the death toll in Israel at 12, with hundreds of people treated for injuries in rocket attacks that have caused panic and sent people rushing into shelters.
Biden on Wednesday urged Netanyahu to seek "de-escalation" and a Hamas political official, Moussa Abu Marzouk, said he believed a ceasefire would be reached "within a day or two".
But asked on Israel's Kan public radio if a truce would begin on Friday, Intelligence Minister Eli Cohen said: "No."
Qatar-based Al Jazeera television reported that U.N. Middle East peace envoy Tor Wennesland was meeting Hamas chief Ismail Haniyeh in Qatar. A diplomatic source said Wennesland was in the Gulf nation as part of intensified U.N. efforts to restore calm in Gaza and Israel.
Israel carried out over a dozen air strikes on Gaza after midnight, targeting what it said was a weapons storage unit in the home of a Hamas official, and military infrastructure in the homes of other commanders from the group.
Hamas-run radio said a woman was killed and four children wounded in one attack on Khan Younis in southern Gaza. Witnesses said several main roads were also damaged in the air strikes.
In the Gaza City suburb of Sabra, Amira Esleem, 14, and three family members were wounded in one Israeli attack, which she said caused parts of their house to collapse.
"We were sitting on the sofa when a missile landed. There was heavy smoke and we couldn't see anything," she said from her hospital bed.
Nearly 450 buildings in Gaza have been destroyed or badly damaged, including six hospitals and nine health centres, the United Nations humanitarian agency has said. More than 52,000 people have fled their homes in Gaza, which is blockaded by Israel and Egypt.
Israelis living in areas frequently targeted by rocket fire began their workday on Thursday without the usual sound of warning sirens. But after an eight-hour break, the sirens blared again in southern Israel.
Israel said some 4,000 rockets have been launched at it from Gaza, some falling short and others shot down by its Iron Dome air defences.
Civilians on both sides are exhausted by fear and grief, the International Committee of the Red Cross said. "People in Gaza and Israel urgently need respite from non-stop hostilities," said Fabrizio Carboni, regional director for the Middle East.
Washington and several Middle East governments have sought an end to the violence through diplomacy. The U.N. General Assembly was due to meet on the conflict on Thursday, but it was not expected to take action.
The U.S. mission said it would not support a French call for a resolution in the 15-member U.N. Security Council, saying it believed such actions would undermine efforts to de-escalate violence.
Any ceasefire is unlikely to address the fundamental issues in the Israeli-Palestinian conflict.
An international peace process aimed at creating a Palestinian state free of Israeli occupation and guaranteeing Israel's security has been frozen since 2014.
Hamas, regarded by the West as a terrorist organisation, has not been part of the mainstream Palestine Liberation Organization's engagement with Israel, which led to interim peace deals in the 1990s and the establishment of limited Palestinian self-rule in the occupied West Bank.
The U.N. Human Rights Council said it will hold a special session on May 27 to address "the grave human rights situation" in the Palestinian territories, including East Jerusalem.
Hamas began firing rockets on May 10 in retaliation for what it called Israeli rights abuses against Palestinians in Jerusalem during the Muslim holy month of Ramadan.
The rocket attacks followed Israeli police clashes with worshippers at al-Aqsa Mosque in Jerusalem and efforts by Israeli settlers to evict Palestinians from a neighbourhood in Israeli-annexed East Jerusalem.
The hostilities are the most serious between Hamas and Israel in years and have helped fuel street violence in Israeli cities between Jews and Arabs.
The conflict has also stoked violence in the West Bank, where Palestinian officials said at least 21 Palestinians have been killed in clashes with Israeli troops or other incidents since May 10.
(Reporting by Nidal al-Mughrabi in Gaza, Rami Ayyub in Tel Aviv and Andrea Shalal aboard Air Force One; Additional reporting by Jeffrey Heller and Ari Rabinovitch in Jerusalem and Aidan Lewis in Cairo; Editing by Angus MacSwan, Philippa Fletcher and Giles Elgood)
Our Standards: The Thomson Reuters Trust Principles.