* Israel: Most of militant attack tunnels are destroyed
* Some tanks withdraw; northern Gaza evacuees told to return
* Israel shuns Cairo truce talks while Palestinians go
* At least 1,675 Gazans killed; 67 dead on Israel's side
By Ori Lewis and Nidal al-Mughrabi
JERUSALEM/GAZA, Aug 3 (Reuters) - Israel on Sunday declared dead a soldier feared abducted by Hamas Islamist militants in the Gaza Strip and said it would continue to fight even after the army completes destroying cross-border tunnels used by Palestinian fighters to attack its territory.
As Israeli television showed live footage of some tanks withdrawing from Gaza in an apparent winding down of the 26-day campaign, Prime Minister Benjamin Netanyahu said Hamas would pay an "intolerable price" if it continued to attack Israel.
It was determined that Hadar Goldin, 23, the soldier Israel had feared Hamas militants abducted on Friday, was killed in action during an operation in the southern Gaza Strip, an army statement said.
"A special committee led by the Israel Defence Forces Chief Rabbi, announced the death of the IDF infantry officer of the Givati Brigade, Lieutenant Hadar Goldin, who was killed in battle in the Gaza Strip on Friday, August 1, 2014," part of the army statement said.
Hamas' armed wing said on Saturday it had no clear indication on Goldin's whereabouts and that he may have been killed during an ambush in the southern Gaza Strip in which two other Israeli soldiers were killed.
Israel began its air and naval offensive against Gaza on July 8 following a surge of cross-border rocket salvoes by Hamas and other guerrillas, later escalating into ground incursions.
Shelling exchanges continued on Saturday, pushing the Gaza death toll given by Palestinian officials to 1,675, most of them civilians. Israel has confirmed that 64 soldiers have died in combat, while Palestinian shelling has also killed three civilians in Israel.
More than 30 tunnels and dozens of access shafts have been unearthed and were being blown up, the military said.
"Our understanding is that our objectives, most importantly the destruction of the tunnels, are close to completion," a military spokesman, Lieutenant-Colonel Peter Lerner, said.
Netanyahu said in a televised speech on Saturday evening that military action would continue even after that goal was achieved.
"After completing the anti-tunnel operation, the IDF will act and continue to act, in accordance with our security needs and only according to our defence needs, until we achieve our objective of restoring security to you, Israel's citizens," he said.
'PAY FOR EVERY MINUTE'
A Hamas spokesman said: "Netanyahu will pay for every minute he spends carrying out more aggression against our people."
Several ceasefires between Israel and Hamas, the Islamist movement that dominates the Gaza Strip, have failed to take hold or quickly collapsed, most recently on Friday after the ambush in which Goldin and the two other soldiers were killed.
In Cairo, a Palestinian delegation arrived for new truce talks, which would include Hamas' demand that Egypt ease movement across its border with blockaded Gaza. Turning its back on those negotiations, Israel said it would not send envoys as scheduled.
"They (Hamas) cannot be trusted to keep their word. They cannot stop (firing) because, for them, a ceasefire at this stage, whether by arrangement or not by arrangement, would mean acknowledging the worst possible defeat," Deputy Foreign Minister Tzachi Hanegbi told Israel's Channel Two TV.
Hamas, its guerrillas massively outgunned by a Jewish state it considers an eternal enemy, said it would prevail.
Any unilateral pullout by Israel would mean "it has failed to achieve any of its goals and would be a clear defeat for the occupation army and for its leaders," Hamas' bloc in the Palestinian parliament said in a statement. "Gaza resisted, endured and will achieve victory."
Israel said Palestinians on Saturday launched 86 rockets across the border, most of which missed their intended targets and fell harmlessly wide, while seven were shot down by its Iron Dome interceptor, including over Tel Aviv.
Crowded Gazan towns close to the Israeli border have seen devastating clashes and the flight of tens of thousands of Palestinians as tanks and troops swept in to confront dug-in guerrillas.
The Palestinian Centre for Human Rights said 520,000 people had been displaced by the fighting - more than a quarter of Gaza's population.
Israel on Saturday told evacuees from Beit Lahiya, a northern town of 70,000 residents, they could return, but fear still gripped the townspeople.
"No one has told us to go back," said Talab Manna, a 30-year-old father of seven camped out at a U.N.-run school serving as a refugee haven. "We can't risk going back and being bombed by the Israeli forces."
Hamas had long threatened to capture Israelis for a prisoner swap. In 2011, Israel released more than 1,000 Palestinian prisoners in exchange for Gilad Shalit, a soldier snatched by Hamas five years earlier. Israel has twice freed prisoners for the bodies of soldiers held by Lebanon's Hezbollah militia.
The Rafah clash in which Goldin was initially reported to have been captured, triggered Israeli shelling from the middle of Friday morning that killed 150 Palestinians. By afternoon, Israel declared an end to the truce - which was meant to have lasted 72 hours.
Rafah residents said they had received recorded telephone warnings from Israel to stay indoors during a barrage that wreaked widespread ruin.
"It was like an action movie - explosions everywhere, cars flying up in flames, people crushed under houses that were bombed," local resident Bassim Abed told Reuters. (Additional reporting by Giles Elgood and Dan Williams in Jerusalem and Mostafa Hashem and Oliver Holmes in Cairo, Writing by Ori Lewis; Editing by Peter Cooney)