A senior official said Hamas has decided not to extend a 72-hour cease-fire with Israel because Israel has rejected all of the group's demands in indirect talks in Cairo, the Associated Press reported.
The official spoke on condition of anonymity because he was en route to informing Egyptian mediators of the decision.
The official says the Hamas delegation met for several hours early Friday with Egyptian officials. He says that in exchange for extending the truce, Hamas had demanded that Israel agree in principle to end Gaza's border closure and allow the rebuilding of Gaza.
He says Hamas was told by Egypt that Israel rejected those demands.
The Israeli army says that two rockets have been fired from the Gaza Strip just hours ahead of the expiration of the 72-hour ceasefire that ended a month of violence.
The rockets fell into an open area in southern Israel and caused no casualties, the Israel Defense Forces said early Friday. There has been no immediate Israeli response.
The rockets threaten to unleash a new round of violence as mediators are racing against the clock to extend a truce between Israel and Hamas in Gaza, as the three-day ceasefire entered its final hours.
Israel has said it was ready to "indefinitely" extend the 72-hour truce, due to expire at 8a local time. But as night fell on Thursday, a senior Palestinian official accused Israel of procrastinating, warning it could lead to a resumption of the fighting when the deadline runs out.
"The Israeli delegation is proposing extending the ceasefire while refusing a number of the Palestinian demands," he said, without elaborating.
"If Israel continues its procrastination, we will not extend the ceasefire."
Speaking to Al Jazeera from Washington, DC, Leila Hilal, a senior fellow at the New America Foundation, said: "We could very well see a resumption of hostilities, as the parties still have a major gap between them. Hamas and the Palestinian delegation has been asking for a lifting of a siege over Gaza - the primary grievance that precipitated this round of conflict, and Israel has refused to do that unless Hamas disarms.
"For Hamas, this is a non-starter. Meanwhile, there's a large mediation effort underway to close that gap," she said.
Hamas's armed wing said it was ready to resume fighting unless Palestinian demands were met, and Israel said it would respond forcefully if attacked.
"Indirect talks are ongoing and we still have today to secure this," an Egyptian official said when asked whether the truce was likely to go beyond Friday's 8 am deadline.
"Egypt's aims are to stabilize and extend the truce with the agreement of both sides and to begin negotiations towards a permanent agreement to cease fire and ease border restrictions."
The Palestinian delegation met Egyptian intelligence officials late on Thursday. Israeli officials said Israel's delegates would return to Cairo in the evening having briefly returned home to confer with Prime Minister Benjamin Netanyahu.
After a month of bitter battles, the two sides are not talking face to face.
Gaza officials say the war has killed 1,875 Palestinians, most of them civilians.
Israel says 64 of its soldiers and three civilians have died in the fighting that began on July 8.
Al Jazeera with the Associated Press