* LATEST DEVELOPMENTS:

* Mosque flattened, homes destroyed in one of worst nights yet of strikes on Rafah

* Hamas leader in Cairo for ceasefire talks

RAFAH, Gaza Strip/CAIRO, Feb 22 (Reuters) - Israeli bombs on Rafah flattened a mosque and destroyed homes in what residents called one of their worst nights yet, while the Hamas chief was in Cairo for talks Gazans hope could bring a truce in time to head off a full-blown assault on the city.

Mourners wailed over at least seven corpses in body bags, laid out on cobbles outside a morgue in the city hard against the Egyptian border, where over half of the Palestinian enclave's 2.3 million people are now huddling, mostly in tents.

Gaza health authorities said 97 people were confirmed killed and 130 wounded in the last 24 hours of Israeli assaults, but most victims were still under rubble or in areas rescuers could not reach.

The al-Farouk mosque in the centre of Rafah was flattened into slabs of concrete, the facades of adjacent buildings blasted away. Authorities said four houses had been struck in the south of the city and three in the centre.

Residents said the bombing was the heaviest since an Israeli raid on the city ten days ago that freed two hostages and killed scores of civilians.

"We couldn’t sleep, the sounds of explosions and planes roaring overhead didn’t stop," said Jehad Abuemad, 34, living with his family in a tent. "We could hear children crying in nearby tents, people here are desperate and defenceless and Israel is showing its power on them."

Gaza authorities said at least 20 people were also killed by bombing of two houses in a central part of the Gaza Strip, the only other substantial area yet to be stormed by Israeli forces in their five-month assault.

Israel launched its campaign in Gaza after Hamas militants who control the territory stormed through Israeli towns on Oct. 7, killing 1,200 people and seizing 253 hostages.

Since then, nearly 30,000 people have been confirmed killed in Gaza, according to health authorities, with thousands more dead feared unrecovered under buildings reduced to wasteland.

HAMAS LEADER IN CAIRO FOR TALKS

Israel has threatened to launch a full-blown attack on Rafah, the last city at Gaza's southern edge, despite international pleas - including from its main ally Washington - that such action could cause a bloodbath.

Residents who have fled to Rafah from elsewhere say there is now nowhere left to go. Meanwhile, an already meagre aid flow has almost completely dried up over the last two weeks, with the United Nations saying it is often no longer safe enough to transport it, forcing residents to the brink of famine.

Talks to reach a ceasefire failed two weeks ago, when Israeli Prime Minister Benjamin Netanyahu rejected a counteroffer from Hamas for a four-and-a-half month truce that would end with an Israeli withdrawal.

Hamas, which is still believed to be holding more than 100 hostages seized in the Oct. 7 attack, says it will not free them unless Israel agrees to end the fighting and withdraw from Gaza. Israel says it will not withdraw until Hamas is eradicated.

But the arrival of Hamas chief Ismail Haniyeh in Cairo this week for his first publicly announced visit since December was the strongest sign for weeks that negotiations are continuing.

Haniyeh has met Egyptian officials involved in mediating, but so far little has been said in public about the talks.

Sami Abu Zuhri, a senior Hamas official, told Reuters that Israel was now backtracking on terms Israel had already accepted at the start of February in a ceasefire offer hammered out with the United States and Egyptian and Qatari mediators in Paris.

"The occupation is not interested in achieving any agreement," he said, accusing Netanyahu of ignoring the issue of freeing captives in a prisoner swap. "All he is concerned about is continuing the execution of Palestinians in Gaza."

There was no immediate response from Israeli officials to the comments. Netanyahu has said he would not agree to Hamas' "delusional demands", but that if the group were to show flexibility, progress would be possible.

On Wednesday, Benny Gantz, a member of Israel's war cabinet, said there were "promising early signs" of a deal to free the hostages, but that without a deal Israel would fight on.

"We will not stop looking for a way and we will not miss any opportunity to bring our girls and boys home," he said. (Reporting by Ibraheem Abu Mustafa in Rafah and Nidal al-Mughrabi in Cairo Writing by Peter Graff; Editing by Andrew Cawthorne)