The death toll in Gaza since December 27, when Israel first launched airstrikes on the enclave, is reported to have risen to over 920, with over 4,000 injured.
"We regard Gaza's civilian population as victims of this conflict: Hamas is effectively using them as hostages. Hamas infrastructure and ammunition depots are located in residential areas," Anna Azari told a news conference in Moscow.
She denied media reports that Israel had been using banned weapons in Gaza, in particular, white phosphorous weapons.
"Israel is not using any weapons prohibited under international conventions," she said.
She also said that Israel still hoped that the ongoing conflict could be resolved through international mediation.
"We are pinning our hopes on successful international mediation, in particular, by Egypt," the envoy said.
In a rare televised appearance, Ismail Haniya, one of the leaders of the radical Islamic Hamas movement, which seized control of Gaza in June 2007, said that the fighting would continue, but added that the movement was prepared to examine any initiative "to stop the aggression and lift the blockade" on Gaza.
Israeli Prime Minister Ehud Olmert has said, however, that Israel will only call a halt to its operations in Gaza if Palestinian militants stop firing rockets on Israel's southern territories and cease smuggling arms into the enclave of 1.5 million.
Meanwhile, the search for a diplomatic solution is continuing in Cairo where Egyptian authorities are holding parallel talks with the Israelis and Palestinians.
UN Secretary-General Ban Ki-moon is due to arrive in the Middle East on Wednesday to meet leaders from the region to seek an end to the violence.
On Thursday, the UN Security Council adopted a resolution, with just the U.S. abstaining, calling for "an immediate, durable and fully respected ceasefire, leading to the full withdrawal of Israeli forces form Gaza."