Shin Bet Chief Yuval Diskin briefed the cabinet Wednesday on the progress of Operation Cast Lead.
According to Diskin, "Hamas has been attacked like never before. It has suffered significant damages and its rule over Gaza has been compromised."
Diskin also noted that large numbers of Hamas operatives are hiding in hospitals and that some are posing as medical staff. "Some are also hiding in mosques and some of those have been turned into headquarters, since they assumed Israel won't attack them there. Their weapons' labs have been completely destroyed and their tunnel system has been severely damaged.
"Hamas is trying to rebuild some of the tunnels in order to smuggle operative into Egypt."
Day five of the Gaza offensive saw the Gaza terror groups manage to target Israeli cities 20 to 25 miles away, as Grad rockets hit Beersheba and its surroundings. The IDF said the hits were a factor of Qassam cells firing from within populated areas within the Strip.
The IAF reported Tuesday of several sightings of cells operating in densely populated areas and attempting to use Palestinian civilians as human shields.
Cells have been detected in neighborhoods in Gaza City, Jabalya, Khan Younis and Rafah.
The IDF has distributed flyers to the Palestinian population in Gaza, warning civilians not to stay in the vicinity of terror cells, for their own safety.
"Hamas is known for using civilians as human shields," said an IDF source. "They force themselves on the population knowing the IDF would find it difficult to target them because of the risk to civilians."
Israel Air Forces fighter jets and Israel Navy warships have been patrolling the air and sea since the early hours of Wednesday morning in an attempt to locate more terror cells.
Hanan Greenberg contributed to this report