Gaza ceasefire holds but mistrust runs deep GAZA/JERUSALEM (Reuters) - A ceasefire between Israel and Hamas held firm on Thursday with scenes of joy among the ruins in Gaza over what Palestinians hailed as a victory, and both sides saying their fingers were still on the trigger. In the sudden calm, Palestinians who had been under Israeli bombs for eight days poured into Gaza streets for a celebratory rally, walking past wrecked houses and government buildings. But as a precaution, schools stayed closed in southern Israel, where nerves were jangled by warning sirens - a false alarm, the army said - after a constant rain of rockets during the most serious Israeli-Palestinian fighting in four years. Israel had launched its strikes last week with a declared aim of ending rocket attacks on its territory from Gaza, ruled by the Islamist militant group Hamas, which denies Israel's right to exist. Hamas had responded with more rockets. The truce brokered by Egypt's new Islamist leaders, working with the United States, headed off an Israeli invasion of Gaza. It was the fruit of intensive diplomacy spurred by U.S. President Barack Obama, who sent his secretary of state to Cairo and backed her up with phone calls to Israeli Prime Minister Benjamin Netanyahu and Egyptian President Mohamed Mursi. Mursi's role in cajoling his Islamist soulmates in Gaza into the U.S.-backed deal with Israel suggested that Washington can find ways to cooperate with the Muslim Brotherhood leader whom Egyptians elected after toppling former U.S. ally Hosni Mubarak, a bulwark of American policy in the Middle East for 30 years. Mursi, preoccupied with Egypt's economic crisis, cannot afford to tamper with a 1979 peace treaty with Israel, despite its unpopularity with Egyptians, and needs U.S. financial aid. Despite the quiet on the battlefield, the death toll from the Gaza conflict crept up on both sides. The body of Mohammed al-Dalu, 25, was recovered from the rubble of a house where nine of his relatives - four children and five women - were killed by an Israeli bomb this week. That raised to 163 the number of Palestinians killed, more than half of them civilians, including 37 children, during the Israeli onslaught, according to Gaza medical officials. Nearly 1,400 rockets struck Israel, killing four civilians and two soldiers, including an officer who died on Thursday of wounds sustained the day before, the Israeli army said. Israel dropped 1,000 times as much explosive on the Gaza Strip as landed on its soil, Defense Minister Ehud Barak said. Municipal workers in Gaza began cleaning streets and removing the rubble of bombed buildings. Stores opened and people flocked to markets to buy food. Jubilant crowds celebrated, with most people waving green Hamas flags but some carrying the yellow emblems of the rival Fatah group, led by Western-backed President Mahmoud Abbas. That marked a rare show of unity five years after Hamas, which won a Palestinian poll in 2006, forcibly wrested Gaza from Fatah, still dominant in the Israeli-occupied West Bank. Israel began ferrying tanks northwards, away from the border, on transporters. It plans to discharge gradually tens of thousands of reservists called up for a possible Gaza invasion. But trust between Israel and Hamas remains in short supply and both said they might well have to fight again. "The battle with the enemy has not ended yet," Abu Ubaida, spokesman of Hamas's armed wing Izz el-Deen Al-Qassam Brigades, said at an event to mourn its acting military chief Ahmed al-Jaabari, whose killing by Israel on November 14 set off this round. The exiled leader of Hamas, Khaled Meshaal, said in Cairo his Islamist movement would respect the truce, but warned that if Israel violated it "our hands are on the trigger." Netanyahu said he had agreed to "exhaust this opportunity for an extended truce," but told Israelis a tougher approach might be required in the future. Facing a national election in two months, he swiftly came under fire from opposition politicians who had rallied to his side during the fighting but now contend he emerged from the conflict with no real gains for Israel. You don't settle with terrorism, you defeat it. And unfortunately, a decisive victory has not been achieved and we did not recharge our deterrence," Shaul Mofaz, leader of the main opposition Kadima party, wrote on his Facebook page. In a speech, Ismail Haniyeh, Hamas's prime minister in Gaza, urged all Palestinian factions to respect the ceasefire and said his government and security services would monitor compliance. The deal also provides for easing Israeli curbs on Gaza's residents, but the two sides disagreed on what this meant. Israeli sources said Israel would not lift a blockade of the enclave it enforced after Hamas won a Palestinian election in 2006, but Meshaal said the deal covered the opening of all of the territory's border crossings with Israel and Egypt. Israel let dozens of trucks carry supplies into the Palestinian enclave during the fighting. Residents there have long complained that Israeli restrictions blight their economy. Barak said Hamas, which declared November 22 a national holiday to mark its "victory," had suffered heavy military blows. A large part of the mid-range rockets were destroyed. Hamas managed to hit Israel's built-up areas with around a metric tone of explosives, and Gaza targets got around 1,000 metric tonnes," he said. He dismissed a ceasefire text published by Hamas, saying: "The right to self-defense trumps any piece of paper." He appeared to confirm, however, a Hamas claim that the Israelis would no longer enforce a no-go zone on the Gaza side of the frontier that the army says has prevented Hamas raids. Additional reporting by Noah Browning in Gaza, Ori Lewis, Crispian Balmer and Dan Williams in Jerusalem; Writing by Jeffrey Heller and Alistair Lyon; Editing by Giles Elgood