* American flights expected back in Tel Aviv in hours     * Kerry reports truce progress; Israel wants more time     * Hamas sticks to demand embargo on Gaza be lifted   (Adds Israeli minister, flights update)     By Nidal al-Mughrabi and Dan Williams     GAZA/JERUSALEM, July 24 (Reuters) - Israel won a partial reprieve from the economic pain of its Gaza war on Thursday with the lifting of a U.S. ban on commercial flights to Tel Aviv, as fighting pushed the Palestinian death toll over 700.     A truce remained elusive despite intensive mediation bids. Palestinians said residents of two southern villages were trapped by tank shelling, preventing evacuation of casualties.     Israel says it needs more time to eradicate cross-border tunnels used by Hamas for attacks, while the Palestinian Islamists demand the blockade on the Gaza Strip be lifted.     With Washington's encouragement, Egypt has been trying to mediate a limited humanitarian ceasefire. One Cairo official said on Wednesday that could go into effect by the weekend, in time for the Eid al-Fitr festival, Islam's biggest annual celebration, which follows the fasting month of Ramadan.     But a senior U.S. official described any truce by the weekend as unlikely, as did an Israeli cabinet minister who said the hunt for tunnels would take at least four days to complete.     "I do not see a ceasefire in the coming days where the IDF (Israel Defence Forces) leave," Science Minister Yaakov Peri, a former security chief who advises Israel's top strategic decision-makers, told the Walla news site. "Even if there is a humanitarian truce, we would continue tackling the tunnels."     The death toll in Gaza reached 718 on Thursday as Israeli tank fire and other pre-dawn assaults killed 26 people in the Hamas-dominated coastal enclave, including six members of the same family, Palestinian health officials said.     In southern Khuzaa and Abassan villages, they said, Israeli shelling left dead and wounded under rubble, while medical crews could not risk attending.     Israel has lost 32 soldiers to clashes inside Gaza and with Hamas raiders who have slipped across the fortified frontier in tunnels. Rocket and mortar shelling by Hamas and other Palestinian guerrillas has killed three civilians in Israel.     Such shelling surged last month as Israel cracked down on Hamas in the occupied West Bank, triggering the July 8 air and sea barrage in Gaza that escalated into an invasion a week ago. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^   Graphic on casualties 
   http://link.reuters.com/qyz42w
     ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>           FLIGHTS RESUMING     Though Israel's Iron Dome rocket interceptor has shot down most of the rockets fired from Gaza, one that came close to Tel Aviv's Ben Gurion Airport on Tuesday prompted the U.S. Federal Aviation Administration (FAA) to bar American flights there.     The ensuing wave of cancellations by foreign airlines emptied Israel's usually bustling international gateway and hurt its hi-tech economy at the height of summer tourist season. It was hailed as a victory by Hamas, and prompted an appeal by Israeli Prime Minister Benjamin Netanyahu for the Obama administration to intervene.     The FAA said that after reviewing the security situation it had cancelled the ban late on Wednesday. US Airways, a unit of American Airlines Group Inc  
   AAL.O
   , said on Thursday it was resuming its non-stop Tel Aviv to Philadelphia service. 
   ID:nL6N0PZ1SB
        Israel predicted other U.S. airlines would follow suit within hours, though European carriers could take longer. Germany's Lufthansa  
   LHAG.DE
    and Air Berlin  
   AB1.DE
    said their suspension of flights to Tel Aviv would continue to Friday.     "The Europeans did not really deliberate over this, but acted more as a follow-up to the American decision," said Gadi Regev, chief of staff for Israel's Civil Aviation Authority.     A number of European flights have been diverted to Cyprus's Larnaca airport for onward travel to Ben Gurion on Israeli carriers.     In what appeared to be let-up in Palestinian attacks, the Israeli military said on Thursday only one rocket had been launched from Gaza overnight. It fell wide, causing no damage.      Hamas leader Khaled Meshaal said his fighters had made gains against Israel and voiced support for a humanitarian truce, but only if Israel eased restrictions on Gaza's 1.8 million people, who are also under an embargo by next-door Egypt.     "Let's agree first on the demands and on implementing them, and then we can agree on the zero hour for a ceasefire ... We will not accept any proposal that does not lift the blockade ... We do not desire war and we do not want it to continue, but we will not be broken by it," Meshaal said on Wednesday in Qatar.     Israel also came under criticism from the U.N. High Commissioner for Human Rights, Navi Pillay, who said there was "a strong possibility" Israel was committing war crimes in Gaza, where medical officials say most of those killed were civilians.     Pillay also condemned indiscriminate Islamist rocket fire out of Gaza, and the United Nations Human Rights Council said it would launch an international inquiry into alleged violations.          U.N. "TRAVESTY"     A furious Netanyahu denounced the inquiry as a "travesty".     "The HRC should be launching an investigation into Hamas's decision to turn hospitals into military command centres, use schools as weapons depots and place missile batteries next to playgrounds, private homes and mosques," he said in a statement.     U.N. Secretary-General Ban Ki-moon, who has also been on a truce-seeking mission, lashed out at militants in Gaza by expressing "outrage and regret" at rockets found inside a U.N. school for refugees, for the second time during the conflict.     Ban said storing the rockets in the schools "turned schools into potentially military targets, endangering the lives of innocent children", along with U.N. employees and the tens of thousands of sheltering Palestinians. He urged an investigation.     U.S. Secretary of State John Kerry returned to Egypt on Wednesday after meeting Palestinian President Mahmoud Abbas in the occupied West Bank and with Ban and Netanyahu in Jerusalem.     "We have certainly made some steps forward. There is still work to be done," said Kerry, on one of his busiest regional visits since Netanyahu called off U.S.-sponsored peace talks over Abbas's power-share deal with Hamas in April.     Gaza has been rocked by regular bouts of violence since Israel unilaterally pulled out of the territory in 2005.     Hamas, which rejects Israel's right to exist, balked at Egypt's proposal for an unconditional truce, saying its conditions had to be met in full before any end to the conflict. Israel briefly held fire last week at Cairo's behest.      The war is exacting a heavy toll on impoverished Gaza. Palestinian officials say at least 475 houses have been destroyed by Israeli fire and 2,644 damaged. Some 46 schools, 56 mosques and seven hospitals have also suffered varying degrees of damage.     Israel says one of its soldiers is missing in Gaza, and the military believes he might be dead. Hamas says it has captured him but has not released a picture of him in their hands.   (Additional reporting by Arshad Mohammed and Yasmine Saleh in Cairo, Amena Bakr in Doha, Stephanie Nebehay in Geneva, and Thomas Seythal in Berlin; Writing by Dan Williams; Editing by Mohammad Zargham and Nick Macfie)  ((dan.williams@thomsonreuters.com)(+97226322202)(Reuters Messaging: dan.williams.thomsonreuters.com@thomsonreuters.net))  Keywords: MIDEAST GAZA/