Gaza fighting raged yesterday, displacing thousands more Palestinians in the battered territory as US Secretary of State John Kerry said efforts to secure a truce between Israel and Hamas had made some progress.
In a blow to Israel's economy and image, American aviation authorities extended a ban on US flights to Tel Aviv for a second day, spooked by rocket salvoes out of the Gaza Strip, with many other global airlines also avoiding the Jewish state.
As Kerry and UN chief Ban Ki-moon held talks in Jerusalem, they appeared cautiously optimistic, saying they had pooled their efforts in the hope of boosting the quest for a truce in a conflict that has claimed 687 lives in Gaza and 35 in Israel.
Kerry met Palestinian President Mahmoud Abbas, Ban Ki-moon and a grim-faced Netanyahu yesterday. He was due to return later in the day to Egypt, which shares a border with Gaza and has mediated with Islamist Hamas.
"We have certainly made some steps forward. There is still work to be done," said Kerry, on one of his most intensive regional visits since the peace negotiations he had brokered between Netanyahu and Abbas broke down in April.
Kerry has been working through Abbas, Egypt and other regional proxies because the United States, like Israel, shuns Hamas as a terrorist group.
Hamas yesterday rejected the US diplomats appeal saying unless the blockade on the Gaza Strip is lifted, no peace is coming.
Israel launched its offensive on July 8 to halt rocket salvoes by Hamas and its allies, which have struggled under an Israeli-Egyptian economic blockade on Gaza and angered by a crackdown on their supporters in the nearby occupied West Bank.
After aerial and naval bombardment failed to quell the outgunned guerrillas, Israel poured ground forces into the Gaza Strip last Thursday, looking to knock out Hamas's rocket stores and destroy a vast, underground network of tunnels.
"We are meeting resistance around the tunnels ... they are constantly trying to attack us around and in the tunnels. That is the trend," Israeli military spokesman Lieutenant-Colonel Peter Lerner said yesterday.
Israel announced that three of its soldiers were killed by explosive devices on Wednesday, lifting the army death toll to 32. Three civilians have also died in rocket attacks out of Gaza, including a Thai labourer hit yesterday.
The military says one of its soldiers is also missing and believes he might be dead. Hamas says it has captured him, but has not released a picture of him in their hands.
Already hurt by mass tourist cancellations, Israel faced increased economic pressure after the US Federal Aviation Administration (FAA) took the rare step on Tuesday of banning flights to Tel Aviv, renewing the order yesterday.
Many other foreign carriers, on heightened alert after a Malaysian airliner was shot down over a combat zone in Ukraine last week, followed suit. Israeli carriers continued to operate.
"Hamas's success in closing the Israeli air space is a great victory for the resistance, a terrible failure for Israel that wrecks the image of Israeli deterrence," said Hamas's Abu Zuhri.
Clouds of black smoke hung over Gaza, some 65 km south of Ben Gurion, with the regular thud of artillery and tank shells filling the air, sending thousands of civilians fleeing from the town of Beit Hanoun in the northern Gaza Strip.
"This is not war, this is annihilation," said 17-year-old Hamed Ayman. "I once dreamt of becoming a doctor. Today I am homeless. They should watch out for what I could become next."
Medics said more than 36 people were killed yesterday, hiking the Palestinian death toll to 678 with a Gaza-based rights group saying more than 80 percent of them were civilians and 24 percent of them are children.
Most of yesterday's dead were in Khuzaa on the Israeli border, close to the southern city of Khan Yunis, the scene of very heavy fighting since before dawn.
The war is extracting a heavy toll on impoverished Gaza, with Palestinian officials saying that at least 475 houses had been totally destroyed by Israeli fire and 2,644 partially damaged. Some 46 schools, 56 mosques and seven hospitals had also suffered varying degrees of destruction.