* Netanyahu's coalition government remains intact
* Lieberman says his differences with Netanyahu have widened
JERUSALEM, July 7 (Reuters) - Israeli Foreign Minister Avigdor Lieberman announced on Monday his party was ending its merger with Prime Minister Benjamin Netanyahu's Likud, saying differences over how to confront the Palestinian Hamas group had contributed to the break.
Lieberman said his Yisrael Beitenu party, which favours a harder line toward the Gaza-based Islamist group now locked in daily cross-border fighting with Israel, would remain in Netanyahu's coalition despite the breakup with Likud.
"Differences between the prime minister and me have lately become substantial and fundamental," Lieberman said at a news conference.
Highlighting his rift with Netanyahu could be an attempt by Lieberman to position himself further to the right of the conservative leader and win back voters who had drifted to the ultranationalist Jewish Home party of Naftali Bennett.
Known for his blunt style and scorching criticism of now-collapsed Israeli-Palestinian peace talks, Lieberman has recently called for a wide offensive against the Palestinian Hamas group in the Gaza Strip.
The frontier has flared in recent weeks, with militants launching rocket attacks and Israel carrying out air strikes.
"A situation in which a terrorist group has hundreds of rockets which it can decide any moment to use is intolerable," Lieberman said. "There have been suggestions that we wait ... but I don't know what we're waiting for."
Netanyahu has cautioned against rash military moves, and political sources said he and Lieberman had a vocal spat at a cabinet meeting on Sunday on confronting Hamas.
At the news conference, Lieberman acknowledged there had been a "heated debate" but gave no details.
Yisrael Beitenu and Likud fielded a joint list of parliamentary candidates in the 2013 general election in a bid to secure a dominant conservative bloc but won fewer votes than they anticipated.
"The truth is this alliance did not work in the election or after it," Lieberman told a news comference, adding that he would remain a "loyal coalition partner".
Netanyahu leads a fractious coalition that includes ultranationalist and centrist parties that differ widely over Israeli settlement on land Palestinians seek for a state, civil liberties and religious issues.
(Writing by Maayan Lubell, Editing by Jeffrey Heller and Ralph Boulton)