Egypt's Prime Minister Hisham Qandil has selected a new government in which the finance and foreign ministers from the outgoing cabinet will retain their posts, state television reported on Wednesday.

Qandil was meeting with the ministers, including Foreign Minister Mohammed Kamel Amr and Finance Minister Mumtaz al-Said, a day before he was to formally unveil the cabinet on Thursday, the Nile News channel reported.

U.S. Defense Secretary Leon Panetta said Wednesday that Iran must either negotiate acceptable limits on its nuclear program or face the possibility of U.S. military action to stop it from getting the bomb.

Panetta made his remarks outside the city of Ashkelon in southern Israel, with an "Iron Dome" anti-rocket defense system as a backdrop.

Rebels in Syria have now set their sights on seizing intelligence branches in the country's commercial capital of Aleppo after taking three police stations there, a rebel commander told Agence France Presse on Wednesday.

The rebels seized three police stations on Tuesday: in Bab al-Nayrab, the southern district of Salhin and in Hanano. Rebel leader Ferzat Abdel Nasser called the takeovers "a small victory that is good for morale."

July was the deadliest month in Iraq in almost two years, with 325 people killed in attacks, official figures released on Wednesday showed.

The statistics compiled by the health, interior and defense ministries showed that 325 people -- 241 civilians, 40 police and 44 soldiers -- were killed nationwide during the month.

Egypt's President Mohammed Morsi has not sent a letter to his Israeli counterpart Shimon Peres, state media reported on Wednesday.

The Israeli president's office had said on Tuesday that the Islamist leader wrote to Peres pledging to revive the Israeli-Palestinian peace talks.

A bomb blast shook the department of military intelligence in the eastern city of Benghazi early Wednesday, causing material damage to the building, Libyan security sources said.

"The department of military intelligence was bombed," a senior security officer told Agence France Presse, adding that the level of damage to the two-storey building suggested it was hit by an improvised explosive device.

The Syrian army is engaged in a "crucial and heroic battle," President Bashar Assad said Wednesday in a speech published by official media agency SANA on the occasion of the 67th anniversary of the army.

"The army is engaged in a crucial and heroic battle... on which the destiny of the nation and its people rests. The enemy is among us today, using agents to destabilize the country, the security of its citizens... and continues to exhaust our economic and scientific resources," he said.

Four Yemeni soldiers and a civilian were killed in an attack on Wednesday by al-Qaida militants on a police station in the southern town of Jaar, a local official said.

"Members of al-Qaida attacked the station with automatic weapons and hurled a grenade, killing two soldiers and a civilian," said the official.

Fighting between soldiers and rebels broke out on Wednesday for the first time near two Christian districts of Damascus, the Syrian Observatory for Human Rights said.

"Fighting erupted at dawn on Wednesday on the outskirts of the Bab Tuma and Bab Sharqi neighbourhoods. First indications are that one soldier has been killed," the Britain-based group said in a statement.

Israeli troops engaged in a brief exchange of fire with unidentified gunmen across the southern border with the lawless Egyptian Sinai Peninsula on Wednesday, a military spokeswoman said.

No-one was wounded in the exchange which took place shortly after troops arrested three "suspected infiltrators" sneaking across the frontier, she said.