By Dan Williams

JERUSALEM, Oct 30 (Reuters) - Israel escalated its threats on Tuesday to invade the Hamas-run Gaza Strip in response to Palestinian rocket fire after a plan to impose economic sanctions drew objections from legal experts and foreign powers.

Since quitting Gaza in 2005, Israel has mounted regular commando raids and air strikes on rocket crews but the salvoes have not ceased. Islamist Hamas's takeover of the territory in June stoked calls in the Jewish state for a big military sweep.

"Every passing day brings us closer to a broad operation in Gaza," Israeli Defence Minister Ehud Barak told reporters. "We are not looking forward to it (and) we would be happy if circumstances prevented it."

Israel, which controls official Gazan border crossings, began reducing the amount of fuel pumped to Gaza this week. It also wants to reduce power supplies but has put that on hold.

The sanctions, which were put together by Barak, prompted UN and EU delegates to urge Israel not to impose "collective punishment", illegal under international law, on Gaza's 1.5 million residents.

Israel's attorney general also opposes cutting electricity supplies to Gaza on humanitarian grounds.

Britain said on Tuesday it was "deeply concerned" by reports that Israel had reduced Gaza's fuel supply and was considering electricity cuts, and had spoken to the Israeli government about the matter.

"We remain firmly committed to Israel's security and recognise its right to act in self-defence.

"But measures taken by Israel in response to violent extremists should be consistent with international humanitarian law and not cause suffering to innocent civilians," Foreign Secretary David Miliband and International Development Secretary Douglas Alexander said in a statement in London.

ROCKETS ARE DISRUPTIVE

The crude Palestinian rockets cause few casualties but often disrupt life in Israeli border towns. Hamas has not claimed recent salvoes, but Israel's top brass say Hamas is carrying out a military build-up that will make it a serious fighting force.

Weighed against an invasion of Gaza is Israeli Prime Minister Ehud Olmert's upcoming peace conference with Western-backed Palestinian President Mahmoud Abbas under U.S. auspices. While Olmert may want calm, he is also under pressure from right-wing coalition partners to hit Hamas hard.

"The present situation will not last," Israeli Vice Premier Haim Ramon, a close Olmert confidant, told Reuters when asked during an interview about a possible Gaza invasion. "I prefer that we use sanctions. I believe that the implementation of sanctions will be effective. But we have our doubts about it," he said, but added: "If they (Hamas) stop sending rockets over, our need for the weapons of sanctions, or other weapons, will not be an issue."

On Monday, Israel suffered its second combat death of the month in Gaza when special forces clashed with Hamas gunmen. Two gunmen and a Palestinian civilian were also killed.

Hamas has offered Israel a long-term truce, though its charter calls for Israel's destruction. Gaza militants have fired more than 80 short-range rockets and mortar rounds into Israel this month, the Israeli army said. (Additional reporting by Ari Rabinovitch in Jerusalem and Adam Entous)

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