Dec. 25 (Bloomberg) -- Israel told Hamas it won’t tolerate attacks on its southern towns and extended a rocket-alert system to include Ashdod, the country’s second-biggest port city.

“I will not hesitate to use Israel’s strength to strike against Hamas,” Israeli Prime Minister Ehud Olmert said in an interview with the Al-Arabiya news channel today, according to a transcript on his Web site. “Hamas must be stopped.”

In Egypt, Foreign Minister Tzipi Livni said the situation in the Hamas-ruled Gaza must be changed. “Enough is enough,” she said after meeting with Egyptian President Hosni Mubarak.

About 100 mortar shells and Qassam rockets have been fired at Israel in the past 36 hours, and the Israeli air force carried out two strikes against launchers in Gaza, an army spokesman said, speaking anonymously by regulation. One Hamas gunman was killed.

“This is not the time for talk, the situation that has been created is not one we can tolerate,” Defense Minister Ehud Barak told his Labor party faction this morning. “Anyone who hurts Israeli civilians or soldiers will pay the price.”

Barak, Livni and Benjamin Netanyahu, head of the opposition Likud party, are all running for prime minister in elections to be held on Feb. 10.

End of Truce

Livni met this morning with Mubarak, who helped mediate a six-month truce between Israel and Hamas that ended Dec. 19. Israel’s security cabinet yesterday discussed the escalation of attacks and approved several unspecified steps against Hamas, Israel army radio said.

Hamas, considered a terrorist group by Israel, the U.S. and the European Union, refuses to negotiate peace with Israel or recognize prior deals reached with the country.

Israel’s military response will go beyond air strikes, an unidentified Israeli official told the daily newspaper Haaretz. “Our response will be substantial and painful to Hamas,” the official said. He said the government is open to extending the cease-fire should Hamas agree, the newspaper reported.

In the television interview, Olmert called on Gaza residents to stop the militants from launching more rockets, thus preventing an Israeli military response.

Extended Reach

Israel’s rocket-alert system, which until now connected to communities only about 10 kilometers (6 miles) from the Gaza border, was extended today to reach as far as 30 kilometers north, encompassing Ashdod, Kiryat Gat and Kiryat Malachi. The Ashdod port accounts for 43 percent of Israeli shipping, behind Haifa with 50 percent.

The move puts about 400,000 people under the system, showing Israel is concerned Hamas and other Gaza militant groups have been able to extend the distance of unguided rockets.

Palestinian Authority President Mahmoud Abbas, whose troops were ousted from Gaza by Hamas in 2007, called on Egypt to step up efforts to renew the truce. “The situation cannot continue like this,” Abbas said yesterday.

In Gaza, Palestinian residents said Israeli aircraft dropped leaflets warning that underground tunnels to Egypt dug to circumvent an Israeli blockade on the seaside territory would be destroyed within 48 hours. An Israeli army spokeswoman, speaking on condition of anonymity by regulation, denied the report.

Israel is negotiating an agreement with Abbas, who governs the West Bank, with the aim of setting the guidelines for a Palestinian state.

To contact the reporters on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net;

Last Updated: December 25, 2008 07:34 EST