Israeli Prime Minister Ehud Olmert said on Sunday that his country reserves the right to renew its military operation in the Gaza Strip despite Israel's unilateral ceasefire.

"The decision on the cease-fire leaves Israel the right to react and renew its military actions if the terror groups continue firing," local daily The Jerusalem Post quoted Olmert as telling the cabinet on Sunday morning.

"We are monitoring all of the developments, minute after minute, hour after hour. The military forces in the strip have their eyes wide open, and are attentive to any rustle and ready for any order from their commanders," he added.

The premier made the remarks as Palestinian rocket fire and Israeli retaliatory bombardment continued on the first day of Israel's unilateral truce, during which Israeli troops said they would hold unprovoked fire but respond harshly to any Palestinian attacks.

Over a dozen rockets and three mortar shells have landed in southern Israel within the first 12 hours following the implementation of the unilateral move starting 2:00 AM (0000 GMT), and Israeli warplanes struck the launching sites in response.

Meanwhile, exchange of fire on the ground also resumed in northern Gaza, and a Palestinian farmer was shot dead by Israeli troops who claimed that he was approaching a military zone.

When declaring the unilateral truce on Saturday night, Olmert said that the Israeli army would remain in Gaza for an unspecified period of time, and that Israel will consider the withdrawal if Hamas entirely ends its rocket fire.

"We can't talk about a timetable for withdrawal until we know the ceasefire is holding," local daily Ha'aretz quoted Olmert's spokesman Mark Regev as saying on Sunday, rebuffing calls for such a time frame.

Noting a possible danger that "Hamas is going to deliberately torpedo the ceasefire" and the accompanying need for Israel "to reinitiate offensive actions," Regev said "we have to be reticent about withdrawing our forces."

"If the ceasefire holds, we can start a process of moving out," he was quoted as saying.

However, Hamas has demanded the "occupying forces" withdraw as soon as possible and vowed to resist until the pullout of Israeli troops and lifting of the Israel-imposed blockade. Palestinian President Mahmoud Abbas has also urged Israel to follow up "the first step" with a truce agreement and a withdrawal.