Israel kills 2 Palestinians, targets govt ministry

GAZA, July 15 (Reuters) Israel killed two Palestinians and targeted the Palestinian economy ministry in Gaza today as part of an assault to free a captured soldier and prevent the functioning of the Hamas-led government.

An airstrike killed a Hamas militant in his home and wounded eight others, including a baby and a child, Palestinian medics said.

Earlier, Israeli troops shot dead a Palestinian who the army said had thrown grenades at them.

Israel said Hamas militants had used the house to make and store weapons, including rockets. Palestinian bulldozers worked to clear the rubble to see whether traces of munitions could be found, Palestinian security sources said.

''The explosion was very large from all the explosives inside,'' an Israeli army spokeswoman said. ''We knew militants from Hamas were staying inside and were working to make a rocket.'' An Israeli air strike also targeted the economy ministry, the latest in a series of attacks that have seen Israeli warplanes target the institutions of the Hamas-led government.

Hamas, which is sworn to destroying Israel, has led the government since winning a January election.

Israel holds Hamas responsible for the fate of Corporal Gilad Shalit, captured in a cross-border raid from Gaza on June 25.

The abduction has prompted an Israel offensive against Hamas in Gaza that has killed about 85 people, around half of them militants.

Israel has also been pursuing a major offensive against the Hizbollah guerrilla group in Lebanon since its fighters captured two Israeli soldiers in a raid on Wednesday. Israeli air strikes have killed 75 people, mostly civilians, in that offensive.

ABBAS URGES PRISONER RELEASE Palestinian President Mahmoud Abbas echoed on Saturday the demands militant groups holding Shalit have posed, urging Israel to free female and underage Palestinians held in Israeli prisons in exchange for the release of the soldier.

''(Israel) needs to understand that the only solution, frankly, is releasing prisoners,'' Abbas told reporters in the West Bank city of Ramallah.

Abbas said indirect contacts with Israel over such a deal would continue. Israel has denied holding negotiations over the soldier and says it will not bargain for his release. It has vowed to press ahead with its Gaza offensive.

Troops currently occupy a part of southern Gaza. Israeli air strikes have targeted infrastructure and several government buildings, including the foreign ministry and the office of Hamas leader and Prime Minister Ismail Haniyeh.

''Israel wants to destroy the Palestinian political system and the Palestinian government,'' Palestinian government spokesman Ghazi Hamad said.

REUTERS AK PM1727