A rocket fired from Gaza struck near Jerusalem as Egypt, which has been leading efforts to broker an end to nearly a week of cross-border violence, said the Israeli "aggression" would end on Tuesday.
A loud boom was heard in Jerusalem shortly after air raid sirens wailed, with the Israeli police and army saying a rocket had crashed into an open area near Gush Etzion without causing any casualties.
The attack was claimed by Hamas's armed wing, the Ezzedine al-Qassam Brigades, which said it had fired "an M75 rocket at the occupied city of Jerusalem".
The second such attack in five days, it came with Hamas engaged in Egyptian-led talks with Israel for a ceasefire on the seventh day of the Jewish state's bombing campaign against rocket-firing militants in the enclave.
In Cairo, Egypt's President Mohammed Morsi struck an upbeat note, saying Israel's "aggression" against Gaza would end on Tuesday and Egyptian-mediated efforts would produce "positive results" within hours.
"The farce of the Israeli aggression will end today, Tuesday, and the efforts to reach a ceasefire between the Palestinians and Israelis will produce positive results within a few hours," the official MENA news agency quoted him as saying.
A Hamas official said chief Khaled Meshaal and his negotiators were currently in a meeting with the intelligence chief. "But it's no secret we're on the verge of an agreement," he said.
Earlier, in a rare statement aired on Hamas television, the Ezzedine al-Qassam Brigades commander Mohammed Deif said that "the enemy will pay a heavy price if it thinks of entering Gaza."
The warning came after Israel halted a threatened ground offensive to give talks a chance to end the conflict that flared on Wednesday when an Israeli strike killed Deif's deputy, Ahmed Jaabari, before launching its bombing campaign.
After the first night of the conflict without Palestinian deaths, the toll rose to 116 on Tuesday when another six people were killed, including a 15-year-old boy who was trying to catch birds, medics said.
Israeli Prime Minister Benjamin Netanyahu and his key ministers took the decision to put off plans for a ground assault at a meeting overnight, a senior official told AFP.
"A decision was taken that for the time being, there is a temporary hold on a ground incursion to give diplomacy a chance to succeed," he said.
The move came as UN Secretary General Ban Ki-moon, in Cairo for Egyptian-led talks on a truce, travelled to Jerusalem and urged both sides to stop their fire "immediately".
The flurry of diplomatic activity will also see US Secretary of State Hillary Clinton cutting short a tour of Asia to head to Jerusalem, Ramallah and Cairo, and Arab League chief Nabil al-Arabi leading a delegation of 12 ministers on a solidarity visit to Gaza.
Israel is looking for a 24- to 48-hour truce as a buffer to work out a more permanent arrangement, with Tuesday's talks "expected to be decisive," Haaretz newspaper said.
But it is pressing on with its troop buildup along the Gaza border regardless, said the official.
"If we see that diplomacy does not bear fruit - and the time we've given to diplomacy is limited - all the preparations are being undertaken so that if and when the order is given the ground incursion can happen expeditiously," he said.
Hamas is understood to be seeking guarantees Israel will stop its targeted killings, and end its six-year blockade on the coastal territory home to 1.6 million people.
Analysts say a ground war could draw in other regional powers, including Israel's arch foe, Iran.
Inside Gaza, where 116 people have been killed and more than 920 injured in the Israeli bombardment, many families have fled their homes in northern Gaza, which has taken the brunt of the air strikes, to seek safe haven in the south.
Since the violence erupted on November 14, Gaza militants have fired more than 1,000 rockets at the Jewish state, killing three people and injuring dozens.
Of those, 715 have crashed into southern Israel and another 359 were intercepted by Israel's Iron Dome anti-missile system.
The violence comes as Israel heads towards a general election in January, raising the spectre of a broader Israeli military campaign along the lines of its devastating 22-day Operation Cast Lead launched at the end of December 2008.