(Adds Abbas hopeful on unity government, paragraphs 3-6)

By Nidal al-Mughrabi

BEIT HANOUN, Gaza Strip, Nov 7 (Reuters) - The Israeli military killed seven Palestinian militants and a civilian on Tuesday after pulling out of a battered town where it had mounted its biggest operation in the Gaza Strip in a year.

"The Israelis leave one area and enter another," Palestinian President Mahmoud Abbas said. "We have spoken to the American administration and to the Europeans that such a situation cannot help restore security and stability."

But Abbas spoke optimistically of efforts to forge a unity coalition between his Fatah movement and the Hamas-led government headed by Prime Minister Ismail Haniyeh.

"We are working very hard in order to form this government. I hope that we will reach a conclusion, maybe within days, maybe in less than days," Abbas told reporters in Gaza a day after launching talks there with Haniyeh.

"We have gone a big distance."

Palestinians hope a joint government of professional experts could adopt a softer platform that could alleviate a Western aid embargo aimed at pressing Hamas to renounce violence, recognise Israel and accept existing peace accords.

Leaving behind a string of wrecked houses, toppled utility polls and broken water pipes after six days of fighting, Israeli armour moved out of the northern Gaza town of Beit Hanoun, a staging ground for rocket attacks on southern Israel.

Hours later, militants in the Beit Hanoun area fired rockets at the coastal Israeli city of Ashkelon. The army said four rockets hit the city but caused no casualties.

Khalil Yazji, a 45-year-old Beit Hanoun resident, said the Israeli operation in the town was the worst it had ever witnessed.

"TSUNAMI" OF BEIT HANOUN

"The Israeli army has brought destruction into every single street and nearly into every single house. This is the tsunami of Beit Hanoun," he said.

In all, Israeli troops killed 52 people, more than half of them militants, during the raids that centred on Beit Hanoun, Palestinian medical officials said. One soldier has been killed.

In new violence, Israeli forces raided three other areas in northern Gaza, killing seven gunmen and a woman, who was in the home of her sister-in-law, a Hamas legislator, when a tank shell hit, militant groups and hospital officials said.

An Israeli army spokeswoman said eight or nine gunmen had been hit by Israeli fire. Asked about the death of the woman in the lawmaker's home, she said Israeli forces had responded to rocket propelled grenades fired from the location.

Israeli political commentators said the army's operations in northern Gaza were partly aimed at restoring deterrence power Israel lost in an inconclusive Lebanon war in July and August.

Announcing an end to "Operation Autumn Clouds", the Israeli army said it found large amounts of weaponry, including rocket launchers and anti-tank missile launchers, in Beit Hanoun.

Beit Hanoun's mayor, a Hamas member, said some 40 homes were destroyed and 400 damaged during the fighting.

Israeli troops and settlers quit the Gaza Strip 14 months ago, but the army in June launched a continuing offensive against militants after gunmen from the territory crossed into Israel and seized a soldier, who is still being held. (Additional reporting by Wafa Amr in Ramallah and Corinne Heller and Ari Rabinovitch in Jerusalem)

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