Military officials said that troops are still ready to tackle any flare-ups in fighting, although they are gradually leaving.

"We are continuing to thin out the forces," a military official told the DPA news agency.

Reserve soldiers who had left the Strip were not yet being demobilized and remained on high alert.

Israel and Hamas separately declared ceasefires on Sunday.

While bulldozers began clearing the streets, Palestinians continued assessing the damage. The Palestinian Central Bureau of Statistics said the repair bill would total at least $1.9 billion (1.4 billion euros).

A source in the Hamas administration in Gaza told Reuters that 5,000 houses, 16 government buildings and 20 mosques were destroyed. The source said some 20,000 houses had been damaged.

Saudi Arabia has promised to donate $1 billion for reconstruction in the Gaza Strip. Israel has opened three border crossing to allow basic goods into the territory. A spokesman for Israeli Prime Minister Ehud Olmert said "enormous amounts" of aid could be allowed in if the quiet holds.

But western diplomats on Monday said Israel intends to exert control over reconstruction projects in Gaza and will seek guarantees that none of them benefit Hamas.

Exchange of fire

Despite the sense of calm slowly returning to the region, Palestinian militants who still reject the truce exchanged fire with Israeli ground troops still stationed in the northern Gaza Strip, residents said.

Israeli gunboats in response shelled open areas along the western coast of northern Gaza, residents told local radio stations. They said they heard several explosions in the area, as well as gunfire. No injuries or damage were reported.

An Israeli military spokesman said he was "not aware" of the incident.

Unlike Sunday, the first day of the truce, when militants nonetheless fired some 18 rockets from Gaza, no missiles had landed in southern Israel by early afternoon.

Death toll

In Gaza City, residents continued sifting through the rubble left behind by Israeli air raids and heavy shelling, and rescue teams found at least 10 more bodies. At least 100 bodies were uncovered on Sunday, Gaza emergency chief Mo'aweya Hassanein told reporters.

They brought the Palestinian death toll in the Israeli offensive to at least 1,310, 514 of them women and minors. The actual civilian toll was likely higher, as health officials were unable to say how many of the adult men were fighters.

More than 5,500 people were injured, 2,650 of them women and children. Some 100,000 Gazans are said to have fled their homes.

Thirteen Israelis, including three civilians, were also killed and dozens injured in the ground fighting and in rocket attacks.

Hamas' military wing said it had fired 975 missiles at Israel during the fighting. It also claimed to have killed 80 soldiers, a figure not confirmed by any other official or unofficial account.

Can the ceasefire hold?

Israeli caretaker Prime Minister Ehud Olmert announced the unilateral truce late Saturday, saying the offensive had achieved its objectives.

Hamas, the radical Islamist movement ruling Gaza, and other factions active in the strip reciprocated on Sunday by announcing they would hold their fire too, but demanded Israel withdraw all of its troops within one week and open its border crossings to allow in humanitarian aid and essential goods.

Olmert told visiting European leaders in Jerusalem Sunday night that Israel was "keen on getting out of the Gaza Strip with the greatest possible speed," but said a complete troop withdrawal would only happen once it was sure the ceasefire was holding and was

stable.

However, on Monday, Hamas vowed to rearm despite Israeli and international efforts to prevent the group from replenishing its arsenal.

"Do whatever you want. Manufacturing the holy weapons is our mission and we know how to acquire weapons," Abu Ubaida, a spokesman for Hamas' armed with, told a news conference.

Israel has threatened to restart military action if Hamas tries to smuggle more weapons into the Gaza Strip.