Israeli soldier 'is still alive'
As a deadline set by the militants passed, one of the groups holding Gilad Shalit said they would not kill him, but there would be no more talks.
The militants had given Israel until 0300 GMT to begin freeing Palestinian prisoners or face "consequences".
Israeli PM Ehud Olmert repeated refusals to negotiate and said Israel would strike "all terror elements".
Mr Olmert ordered security forces to pursue operations "against terrorists, those who protect them and those who give them orders," AFP reported.
The statement came after missiles hit the Gaza Strip twice early on Tuesday as Israel continued air strikes for the seventh night.
Shalit 'injured'
Cpl Shalit, 19, was captured nine days ago during a cross-border raid.
The sky will fall on their heads if they dare to harm Gilad Shalit
Israeli Justice Minister
Haim Ramon
"We know that until now Gilad Shalit is alive, we know that he is injured, that he was seen by a Palestinian doctor a few days ago," said Israeli government spokesman Avi Pazner on Tuesday on the French news channel LCI.
Hamas' Izzedine al-Qassam Brigades, the Popular Resistance Committees and the little-known Islamic Army say they are holding Cpl Shalit.
The three groups have demanded that all Palestinian women and young prisoners be released along with 1,000 male prisoners in exchange for information about Cpl Shalit's welfare - a demand Israel has rejected.
On Tuesday morning a spokesman for the Islamic Army told the BBC that, now the deadline has expired, "the filed is closed - there will be no more negotiations, no more information will be released, there will be no mediation".
He said "all options" were open to the militants, except killing the soldier because the captors were Muslims who did not treat their captives as others, such as the US, did.
University hit
Israel has carried out nightly air strikes against militant targets and infrastructure in Gaza, including knocking out its only power plant.
Why is Hamas doing this to its own people? When they kill the soldier, they will be killing themselves too
Mark, United States
Strikes early on Tuesday hit a Gaza City university and killed one militant and injured another in Beit Lahiya in northern Gaza, Palestinians said.
The Israeli army said the men in Beit Lahiya had been planting explosives near Israeli positions in the area.
A building at the Islamic University, a Hamas stronghold, was also hit.
The Israeli military said it had hit a "compound used by terror groups for instructing and directing terrorists", the Associated Press news agency reported.
Eight militants have been killed since Israel began its military campaign last Tuesday night.
Ultimatum
In a statement on Monday, the three militant groups believed to be holding Gilad Shalit said that if Israel did not meet their demands for prisoner releases, the groups would "consider the soldier's case to be closed".
SOLDIER CAPTURE TIMELINE
Sun 25 June: Cpl Gilad Shalit captured in cross-border attack
Mon 26 June: Palestinian Popular Resistance Committees demand prisoner releases in exchange for Shalit
Weds 28 June: Israeli military enters southern strip after launching air strikes on Gaza
Thurs 29 June: Israel detains dozens of Hamas officials
Sat 1 July: Groups believed to be holding Cpl Shalit demand 1,000 prisoners be released
Mon 3 July: Groups holding soldier issue ultimatum for 0300 4 July
"The enemy must bear all the consequences of the future results," it concluded.
"We give the Zionist enemy until 0600 [0300 GMT] tomorrow, Tuesday 4 July."
A small Israeli force entered northern Gaza on Monday, and tanks remain ensconced in the south.
A larger force is massed on the Israel-Gaza border.
Hours before the deadline expired, Israeli Justice Minister Haim Ramon said Israel operations would be "far, far worse" if Cpl Shalit was harmed.
"The sky will fall on their heads if they dare to harm Gilad Shalit," he said.
After the deadline passed he told Israeli Army Radio that Israel's position had not changed.
In other developments:
Israeli troops seized three Palestinians from a police station in the West Bank town of Ramallah, where they were being held on suspicion of killing a Jewish settler last week
A Palestinian man was shot dead in the West Bank town of Jenin. The Israeli military said it had opened fire on several people planting explosives.
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