Israeli fire killed at least 21 Palestinians in the Gaza Strip early on Wednesday as the Jewish state said it targeted Islamist militants at dozens of sites across the coastal enclave, while Egyptian mediators prepared a revised ceasefire proposal.
Israel's Channel Two TV said progress was being made to achieve a deal in Cairo, where a Palestinian delegation was expected to arrive for discussions.
Israeli tank shells pounding houses in eastern Jebalya in the northern Gaza Strip killed 13 people and wounded many others, health ministry spokesman Ashraf Al-Qidra said. Among the dead were a medic and an infant, he said.
Eight people, including five members of the same family in Jebalya, were killed in other strikes across the Gaza Strip.
Gaza hospital officials put the total number of Palestinians killed in the conflict at 1,224, most of them civilians. On the Israeli side, 53 soldiers and three civilians have been killed since the start of the offensive on July 8.
Israel launched its offensive in response to rocket salvoes fired by Gaza's dominant Hamas Islamists and their allies.
UNRWA, the main U.N. relief agency in Gaza, said it was at "breaking point" with more than 200,000 Palestinians having taken shelter in its schools and buildings following calls by Israel for civilians to evacuate whole neighborhoods before military operations.
The Israeli assault intensified after the deaths of 10 soldiers in Palestinian cross-border attacks on Monday; Prime Minister Benjamin Netanyahu warned of a long conflict ahead.
The army said it needed about a week to complete its main mission of destroying cross-border infiltration tunnels, and there has been strong Israeli public support for holding course.
In a bid to boost Palestinian spirits and demoralize Israel, Hamas TV aired footage it said showed the group's fighters using a tunnel to reach an Israeli army watchtower on Monday. They are seen surprising an Israeli sentry, opening fire and storming the watchtower compound to surround a fallen soldier.
Mohammed Deif, the shadowy leader of Hamas's armed wing, said in a recorded message in a television broadcast that Palestinians would continue confronting Israel until its blockade on Gaza - which is supported by neighboring Egypt - was lifted.
"The occupying entity will not enjoy security unless our people live in freedom and dignity," Deif said. "There will be no ceasefire before the (Israeli) aggression is stopped and the blockade is lifted. We will not accept interim solutions."
Israel demands disarmament
Israel has balked at freeing up Gaza's borders under any de-escalation deal unless Hamas's disarmament is also guaranteed.
Egypt said on Tuesday it was revising an unconditional truce proposal that Israel had originally accepted but Hamas rejected, and that the new offer would be presented to a Palestinian delegation expected in Cairo. An Israeli official said Israel might send its own envoy to Cairo.
"We are hearing that Israel has approved a ceasefire but Hamas has not," an Egyptian official told Reuters, an account that the Netanyahu government neither confirmed nor denied.
The U.S.-backed administration of Palestinian President Mahmoud Abbas in the Israeli-occupied West Bank voiced support on Tuesday for a 24-72 hour ceasefire. It said it was also speaking for Hamas and Islamic Jihad in the Gaza Strip.
Hamas spokesman Sami Abu Zuhri disputed that statement but confirmed there were "intensive, ongoing contacts" on a truce.
Outside pressure has been building on Netanyahu to rein in his forces, while few Israelis want the operation to end now.
A Tel Aviv University poll published on Tuesday found 95 percent of Israel's Jewish majority felt the offensive was justified. Only 4 percent believed too much force had been used.
Both U.S. President Barack Obama and the U.N. Security Council have called for an immediate ceasefire to allow relief to reach Gaza's 1.8 million Palestinians, followed by negotiations on a more durable end to hostilities.
Efforts led by U.S. Secretary of State John Kerry last week failed to achieve a breakthrough, and the explosion of violence appeared to dash international hopes of turning a brief lull for the Muslim Eid al-Fitr festival into a longer-term ceasefire.
Hamas preaches the Jewish state's destruction but has been open to long-term ceasefires in the past. Since it is shunned by the United States and Israel as a terrorist group, Kerry's mediation has been facilitated by Egypt, Turkey, Qatar and Abbas.
Power station knocked out
Thick black smoke rose from blazing fuel tanks at Gaza's only power station which Israel knocked out on Tuesday. Officials said the plant could be out of action for a year.
Electricity was cut to the city of Gaza and many other parts of the Hamas-dominated territory after what officials said was Israeli tank shelling of the tanks containing about 3 million liters of diesel fuel.
"The power plant is finished," said its director, Mohammed al-Sharif. An Israeli military spokeswoman had no immediate comment and said she was checking the report.
Palestinians launched 54 rockets toward southern and central Israel, including the Tel Aviv and Jerusalem area, on Tuesday, the military said, adding that five were shot down by Iron Dome interceptors while the rest fell wide, causing no damage.
The Israeli military said soldiers killed five gunmen who opened fire after emerging from a tunnel inside the Gaza Strip and that 110 targets were struck in the enclave on Tuesday.