Fighting subsided in war-torn Gaza Monday at the start of the Muslim holiday of Eid al-Fitr as world powers ramped up pressure on the warring sides to immediately end their 21-day confrontation.

>> More fighting breaks out in Gaza after rockets hit Israel >> UN Security Council calls for immediate Gaza ceasefire

US President Barack Obama during the night phoned Israeli Prime Minister Benjamin Netanyahu to demand an "immediate, unconditional humanitarian ceasefire", in a call echoed several hours later by the UN Security Council.

As diplomatic efforts intensified to broker an end to the bloodletting which has claimed over a thousand lives, both sides appeared to have settled into an undeclared ceasefire arrangement with the skies over Gaza calm for a second night running.

The army said only one rocket had struck Israel since midnight, hitting the southern port city of Ashkelon, while in Gaza, an AFP correspondent confirmed there had been no Israeli air strikes during the night.

Military spokesman General Moti Almoz described the overnight calm as "an unlimited lull" but warned that the army was ready to resume its activity at any time.

Shortly afterwards, two Palestinians, including four-year-old Samih Ijneid, were killed when Israeli tanks opened fire near the northern town of Jabaliya, emergency services spokesman Ashraf al-Qudra said.

Three other Palestinians succumbed to their wounds during the night, raising the overall death toll in Gaza to 1,037.

Israeli warplanes also fired on targets in Gaza City as well as in northern and central Gaza, but nobody was reported injured.

'Eid of martyrs'

There was little mood for celebration in Gaza City as the three-day festival of Eid al-Fitr that ends the holy fasting month of Ramadan got under way.

Several hundred men, women and children arrived for early-morning prayers at the Al-Omari mosque, bowing and solemnly whispering their worship.

But instead going to relatives' houses to feast, most went straight home while some went to cemeteries to pay their respects to the dead.

Among them was Ahed Shamali whose 16-year-old son who was killed by a tank shell several days ago.

"He was just a kid," he said, standing by the grave. "This is the Eid of the martyrs."

"After the destruction and war we've seen here, there's no Eid for us now," said a 44-year-old man who gave his name only as Issa.

Meanwhile in Jerusalem's Al-Aqsa mosque, some 45,000 worshippers rallied in support of war-torn Gaza as they gathered for the Eid prayers, police and an AFP correspondent said.

"Our blood for Gaza," they chanted, many of them wearing black T-shirts emblazoned with logos reading: "Gaza, supporting you is our Eid" and "We are all Gaza."

'Ceasefire now'

Several hours earlier, the UN Security Council appealed for both sides to accept an "immediate and unconditional humanitarian ceasefire" to permit the urgent delivery of aid, in a non-binding statement which elicited disappointment from the Palestinian envoy.

The UN statement came after Obama phoned Netanyahu to stress "the strategic imperative" of implementing an immediate humanitarian truce.

The diplomatic pressure increased after both Israel and Hamas had observed a 12-hour lull on Saturday.

Although Israel initially responded to an international demand to extend the ceasefire, holding its fire for another 14 hours, Hamas snubbed the call and continued firing rockets over the border, one of which killed a soldier.

Several hours after Israel resumed its operations, Hamas made a belated call for a 24-hour ceasefire which never materialised.

But overnight, calm appeared to have been restored with both sides apparently respecting an unspoken lull, although there was no formal announcement to that effect.

Diplomatic row brewing

Despite the relative calm on the ground, a diplomatic row was brewing between Israel and Washington over US efforts to end the violence, which on Friday saw the Israeli cabinet unilaterally rejecting a truce proposal laid out by US Secretary of State John Kerry.

"Very senior officials in Jerusalem described the proposal that Kerry put on the table as a 'strategic terrorist attack'," Ari Shavit wrote in Haaretz, saying the anger was over his decision to reportedly formulate an initiative along the lines proposed by Hamas allies Turkey and Qatar.

The decision "to go hand in hand with Qatar and Turkey, and formulate a framework amazingly similar to the Hamas framework, was catastrophic. It put wind in the sails of Hamas' political leader Khaled Meshaal," he said.

"Israel was very close last night to a decision to announce a unilateral ceasefire," wrote Nahum Barnea in the top-selling Yediot Aharonot.

"And then came Obama’s telephone call to Netanyahu, and the tension between the Israeli government and the US administration turned into a crisis, which is now threatening to disrupt the path to a ceasefire," he wrote.

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