Israel formed an emergency unity government on Wednesday as its jets pounded Gaza and tanks massed around the Palestinian enclave, and the army said it killed three Hamas militants in a fresh confrontation on nearby Israeli territory.

Former Defence Minister Benny Gantz, a centrist opposition leader, spoke live on Israeli television alongside Prime Minister Benjamin Netanyahu and Defence Minister Yoav Gallant after forming a war cabinet focused entirely on the conflict.

"Our partnership is not political, it is a shared fate," said Gantz. "At this time we are all the soldiers of Israel."

Netanyahu said the people of Israel and its leadership were united. "We have put aside all differences because the fate of our state is on the line," he said.

Israel's death toll rose to 1,200 with over 2,700 wounded, its military said, in a weekend rampage by militants who breached the border fence enclosing Gaza in a shock infiltration of nearby Israeli towns and villages.

Israeli reprisal strikes on blockaded Gaza have killed 1,100 people and wounded 5,339, Gaza's Health Ministry said. Some 535 residential buildings had been destroyed leaving around 250,000 homeless, Hamas officials said. Most of the displaced were in U.N.-designated shelters, others huddling in shattered streets.

U.S. President Joe Biden, who has pledged Washington's ongoing support for Israel, despatched his top diplomat, Antony Blinken, to the region in a bid to avert a wider Middle East war.

Hamas' armed wing, the Al Qassam Brigades, said it was still fighting inside Israel on Wednesday, and the Israeli military said a tank fired on three militants in a vehicle near Nir Am kibbutz, just outside northeast Gaza, and killed them.

Israel has deployed formations of tanks and armoured vehicles near Gaza in possible preparation for a ground offensive into the Hamas-ruled coastal enclave.

Hamas's armed wing said it had targeted the northern Israeli coastal city of Haifa with an R60 rocket. There were no immediate reports of casualties after sirens sounded in Haifa and nearby towns.

A Reuters TV crew saw a house hit by an apparent projectile near Metulla in Israel's far north, close to the border with south Lebanon where the heavily armed Iran-backed Hezbollah group is active.

Israel has vowed swift punishment for the deadliest Palestinian militant attack in its 75-year-old history, which left corpses strewn around a music festival and a kibbutz community.

Dozens of Israeli fighter jets struck more than 200 targets in a neighbourhood of Gaza City overnight that the military said had been used by Hamas to launch its attacks.

Israel has put Gaza under "total siege" to stop food and fuel reaching the enclave of 2.3 million people, many poor and dependent on aid. Hamas media said on Wednesday electricity went out after the only power station stopped working.

With Palestinian rescue workers overwhelmed, others in the crowded coastal strip searched for bodies in the rubble.

"I was sleeping here when the house collapsed on top of me," one man cried as he and others used flashlights on the stairs of a building hit by missiles to find anyone trapped.

The Israeli military said its troops had killed at least 1,000 Palestinian gunmen who infiltrated from Gaza as they regained control of the border region, and the Chief of the General Staff met commanders to discuss their next steps.

"We will wipe this thing called Hamas, ISIS-Gaza, off the face of the earth," Defence Minister Gallant said in the televised joint address, likening Hamas to the Islamic State group. "It will cease to exist."

WEST BANK VIOLENCE

Scores of Israelis and others were taken to Gaza as hostages, some of whom were paraded through streets. Both sides have said many women and children were among the dead and wounded, and distraught relatives have held multiple funerals.

Israel said it was shifting schools to remote learning from Sunday and issuing more firearms to licensed citizens, predicting possible friction between its Jewish majority and Arab minority amid calls for more protests in support of Gaza.

Israeli security forces have killed at least 27 Palestinians during clashes in the occupied West Bank since Saturday, as Palestinian factions called on people in the Palestinian territory to rise up following Hamas' strike from Gaza.

The acting governor of the West Bank city of Nablus, Ghassan Daghlas, said Palestinians were shot at and reportedly wounded by Israeli settlers. Reuters could not immediately verify the report and there was no immediate Israeli comment.

In another sign of the crisis widening, Israeli shelling hit southern Lebanese towns after a rocket attack by the powerful Hezbollah in the fourth consecutive day of violence there.

A ground offensive into Gaza carries risks for Israel, notably to the hostages held in the narrow, widely urbanised enclave. Hamas has threatened to execute a captive for each home hit without warning.

Palestinian sources said one of the homes Israeli air strikes hit in Gaza overnight killed three relatives of Hamas military wing chief Mohammed Deif, the secretive mastermind of the assault, which was planned for two years.

Israel withdrew settlers and troops from Gaza in 2005 after 38 years of occupation. An Israeli blockade since Hamas seized power in the enclave in 2007 has created conditions which Palestinians say are intolerable.

Washington said it was talking with Israel and Egypt about safe passage for civilians from Gaza, with food in short supply.