Israel-Palestine conflict: Death toll now at almost 1,000

The death toll surged to almost 1,000 since Palestinian militant group Hamas launched its massive surprise attack on Israel with a barrage of rockets and a large-scale ground assault, officials on both sides said on Sunday.

Israel battered Gaza on Sunday after suffering its bloodiest attack in decades, when Hamas fighters rampaged through Israeli towns killing 600 and abducting dozens more, as the spiralling violence threatened a major new Middle East war.

Israeli air strikes hit housing blocks, tunnels, a mosque and homes of Hamas officials in Gaza, killing more than 370 people, including 20 children, as Prime Minister Benjamin Netanyahu vowed "mighty vengeance for this black day".

In a sign the conflict could spread beyond blockaded Gaza, Israel and Lebanon's Iran-backed Hezbollah militia exchanged artillery and rocket fire, while in Alexandria, two Israeli tourists were shot dead along with their Egyptian guide.

In southern Israel, Hamas gunmen were still fighting Israeli security forces 24 hours after a surprise, multi-pronged assault of rocket barrages and bands of gunmen who overran army bases and invaded border towns.

"My two little girls, they're only babies. They're not even five years old and three years old," said Yoni Asher who had seen video of gunmen seizing his wife and two small daughters after she took them to visit her mother, he said.

Israel's military, which faces questions over its failure to prevent the attack, said it had regained control of most infiltration points along security barriers, killed hundreds of attackers and taken dozens more prisoner.

This comes after Palestinian militants in the Gaza Strip carried out an unprecedented infiltration Saturday into southern Israel, sending fighters across the border and firing thousands of rockets into the country as the ruling Hamas militant group announced the beginning of a new operation.

The Israeli military put the country on war alert and began striking targets in Gaza in response. In a serious escalation, salvos of rockets fired from Gaza set off constant air raid sirens as far north as Jerusalem.

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Prime Minister Benjamin Netanyahu said "we are at war" and vowed severe retaliation after ordering an extensive mobilisation of army reserves. "The enemy will pay an unprecedented price" for the surprise attack, he warned.

Hamas, which controls the Gaza Strip, released a video showing its fighters had captured three men dressed in civilian clothes and described as "enemy soldiers" in the video caption.

"We decided to put an end to all the crimes of the occupation (Israel). Their time for rampaging without being held accountable is over," said the Ezzedine al-Qassam Brigades, the Hamas armed wing.

"We announce Operation Al-Aqsa Flood and we fired, in the first strike of 20 minutes, more than 5,000 rockets."

Israel's army said its forces were fighting Palestinian militants on the ground in several locations near the Strip. It dubbed its operation "Swords of Iron".

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Army spokesman Richard Hecht said the militants conducted a combined raid "which happened through paragliders, through the sea and through the ground".

He would not be drawn on reports that Israelis had been captured.

Unverified videos on social media showed bodies of a number of people in military fatigues as well as dead motorists and passengers on a highway.

"Send help, please!" one woman sheltering with her two-year-old child pleaded as militants shot at her house and tried to break into their safe room, according to Israeli media.

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Militant infiltration from Gaza, an impoverished enclave home to 2.3 million people, has been rare since Hamas took control in 2007. Gaza is sealed off from Israel by a militarised border barrier.

The rocket barrage from Gaza — which Hecht said numbered at least 2,200 — left cars burning beneath residential buildings in the Israeli city of Ashkelon, about 10km north of Gaza.

Israel's Magen David Adom emergency medical services said that, by early afternoon, its teams "have pronounced 22 victims deceased" from gunshots, while hundreds more were wounded.