Israel killed a top Hamas official during heavy bombing in Gaza Thursday as diplomats working on both sides pushed for an end the 20-day-old conflict, which has left more than 1,100 people dead.

Said Siam, a Hamas hardliner and the former interior minister of Gaza, was killed when bombs destroyed Siam's home north of Gaza City late Thursday.

The death marks the first time during the offensive that Israel has killed a top Hamas in Gaza. Siam was "widely-feared" and was responsible for thousands of Hamas fighters, according to the BBC.

Siam's death came as Israel continued to hammer Gaza with heavy bombing, which also destroyed a UN compound that was housing hundreds of Palestinians.

Israeli Prime Minister Ehud Olmert apologized Thursday for shelling the UN building, calling it "very sad." However, he insisted that Israeli forces were firing back at militants who shot at them first.

"It is absolutely true that we were attacked from that place, but the consequences are very sad and we apologize for it," he said.

"I don't think it should have happened and I'm very sorry."

A senior Israeli commander, who spoke to The Associated Press under condition of anonymity prior to Olmert's public remarks, said militants had fired anti-tank weapons and machine guns from inside the UN compound on Thursday.

Israel's apparent counter-attack set the compound on fire, destroyed food supplies and forced hundreds of refugees to flee the area.

UN officials said it was "nonsense" that militants had been firing from inside the compound.

United Nations Secretary-General Ban Ki-moon, who is meeting with Israeli officials in Israel Thursday, has demanded an investigation into the incident.

"I conveyed my strong protest and outrage to the defense minister and foreign minister and demanded a full explanation," Ban said.

Earlier Thursday, the UN chief said that Israeli Defence Minister Ehud Barak told him the attack on the UN compound was a "grave mistake."

Barak also reportedly said Israel would pay extra attention to protecting UN facilities.

The UN Works and Relief Agency compound was providing shelter for 700 people fleeing the Israeli assault, spokesperson Francesc Claret told CTV Newsnet in a phone interview from Jerusalem. All the people were evacuated to a nearby school.

Claret called the incident a "major setback" in the agency's ability to deliver aid, and harshly criticized Israel for the attack, in light of the Israeli government's guarantee to not target aid installations.

"Gaza is the only conflict in the world that I know right now where the civilian population is denied the right to flee the combat," said Claret. "There is nowhere safe in Gaza, even within the UN compound."

Still, he said the agency will continue to provide shelter and health services in Gaza.

Claret said the UN compounds are clearly marked and that Israeli authorities even have the GPS (global position system) co-ordinates of the compound.

"They know where each of our installations are in Gaza," he said.

UN spokesman Chris Gunness says at least three people were wounded.

Meanwhile, Israeli ground troops have moved deep into Gaza City, engaging in close-combat fighting with Hamas.

"People are very, very nervous, there is very heavy fighting," CTV's Tom Kennedy reported Thursday from Jerusalem.

Also on Thursday, Israeli shells struck a hospital, five high-rise apartment buildings and a building used by media outlets.

Several reporters were reported injured.

The Foreign Press Association demanded that Israel stop its attacks on buildings housing reporters.

Since the Israeli offensive began on Dec. 27, about 1,100 Palestinians have been killed, including about 550 civilians.

Thirteen Israelis have also died. Israeli military reported 14 firings of rockets into Israel on Thursday.

Truce negotiation

Israeli government spokesman Mark Regev said his country has sent an envoy to Cairo for truce talks with Egyptian mediators.

Regev says envoy Amos Gilad will be negotiating the "parameters of the end game" with the mediators.

"The Israeli government is saying that diplomatic efforts pushing towards a ceasefire now have momentum," Kennedy said.

Israel, which launched the offensive against Hamas in Gaza on Dec. 27, wants a total stoppage of Palestinian rocket fire into southern Israeli towns.

Regev said Gilad will not be meeting with Hamas envoys in Egypt.

Egypt is pushing both Israel and Hamas to accept a 10-day truce to allow time for a more comprehensive accord to be negotiated.

Israel has also dispatched a senior diplomat to Washington to discuss international guarantees that Hamas will not rearm its militia, reports The Associated Press.

In Israel, Ban met with Israeli Foreign Minister Tzipi Livni on Thursday.

"We have some elements now in place which may allow a cease fire to come fairly soon," he told a news conference. "I hope so, but that depends on the political will of the Israeli government."

He said a complete truce agreement was not necessary to halt the fighting.

"You can discuss terms and conditions later, my demand is to cease firing immediately," he said.

"I'm well aware that rockets have been fired at Israeli civilians for years from Gaza," he said. "I have always condemned these as acts of terrorism and said they must cease."

With files from The Associated Press