By Nadim Ladki (additional reporting by bureax in Beirut, Jerusalem, Kuala Lampor, Washington and New York)

BEIRUT, July 27 (Reuters). Israeli warplanes and artillery hammered Lebanon again on Thursday and the Beirut government said up to 600 people may have been killed in Israel's 16-day-old campaign against Hizbollah guerrillas.

Israel's inner cabinet chose to pursue a strategy of air strikes and limited ground incursions, rather than a full-scale invasion of Lebanon, to halt Hizbollah rocket fire on its towns.

Military chief Lieutenant-General Dan Halutz said Hizbollah had suffered "huge damage" and added there would be no halt in the offensive. He said he would order up to 15,000 reserve soldiers to report for duty.

U.S. President George W. Bush said he wanted an end to the conflict as soon as possible but that he did not want a "fake peace" that would only delay fighting.

Lebanese Health Minister Mohammad Khalifeh said hospitals had received 401 bodies of people killed during the war launched by Israel after the Shi'ite guerrillas captured two of its soldiers and killed eight in a cross-border raid on July 12.

"On top of those victims, there are 150 to 200 bodies still under the rubble. We have not been able to pull them out because the areas they died in are still under fire", he told Reuters.

At least 445 people, most of them civilians, have been confirmed killed in Lebanon, according to a Reuters tally. Fifty-one Israelis, including 18 civilians, have been killed.

Bodies still lie in the streets in some isolated Lebanese border villages, where fighting has trapped terrified civilians, the International Committee of the Red Cross (ICRC) said.

"In every fight, we are sheep for the slaughter", said Hafez Ebeid, 65, who had fled his border village of Marwaheen to the relative safety of Sidon, the biggest city in the south.

Israeli Prime Minister Ehud Olmert's security cabinet decided against a major expansion of the ground war at a meeting called a day after nine Israeli soldiers were killed in Lebanon, the army's heaviest one-day loss in the conflict.

Israel's army does not want to get bogged down in south Lebanon only six years after it pulled out under Hizbollah fire.

1,400 ROCKETS

Dozens of Hizbollah rockets landed in northern Israel on Thursday, wounding four people. More than 1,400 rockets have hit Israel since the conflict began.

The United States has given Israel the green light to pursue its assault on Lebanon by refusing to call for an immediate ceasefire or to allow the U.N. Security Council do so.

"My goal is exactly what I said it was, and that is to hopefully end this as quickly as possible and at the same time making sure there is a lasting peace, not a fake peace", Bush said.

France said it was disappointed that an international conference in Rome on Wednesday had failed to call for an immediate end to hostilities and urged Security Council foreign ministers to meet next week to work on a ceasefire resolution.

U.S. Secretary of State Condoleezza Rice, who visited Beirut and Jerusalem this week, said she would return to the Middle East if she believed she could clinch a lasting peace in Lebanon.

Her comments, made on arrival in Malaysia for a regional security conference, underlined Washington's intention not to press Israel to stop fighting until Hizbollah guerrillas, backed by Iran and Syria, had been significantly weakened.

"I am willing and ready to go back to the Middle East at any time that I think we can move toward a sustainable ceasefire that can end the violence", Rice told a news conference.

Security members agreed on a statement expressing shock and distress at Israel's deadly bombing of a U.N. outpost in Lebanon and called for Israel to conduct a comprehensive inquiry.

AL QAEDA THREAT

With anger among Arabs and Muslims mounting over Israel's offensives in Lebanon and the Gaza Strip, al Qaeda declared it would not stand by, and urged Muslims to fight.

"How can we remain silent while watching bombs raining on our people?" asked the group's deputy leader Ayman al-Zawahri.

The ICRC said villages, running short of basic supplies, were living in fear. "Dead bodies had not been removed from the streets and others were still buried in rubble", it said.

Israeli planes destroyed radio masts north of Beirut and hit trucks in eastern Lebanon, killing three drivers, security sources said. Warplanes and artillery also blasted targets in the mainly Shi'ite south, killing seven civilians.

Hizbollah said it lost two more fighters, taking the number of the dead it has acknowledged to 31. Israel says it has killed more than 100 guerrillas.

The Lebanon conflict has largely overshadowed separate fighting in the Gaza Strip, which shows no sign of abating.

Israeli attacks killed three people, including a 75-year-old woman, in Gaza on Thursday, medics said, a day after clashes in which 24 Palestinians died. Israel has killed 146 Gazans in a month-long offensive to recover a soldier seized by militants.

Reuters AlertNet

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