Deadly hostilities engulfed Gaza once again where a 10-year-old boy was killed yesterday and Israeli warplanes struck targets in retaliation for dozens of Palestinian cross-border rocket attacks.
But Egypt, mediating indirect talks between Israelis and Palestinians, said negotiations were making progress despite the violence and called for an expired ceasefire to be extended.
The head of the Palestinian delegation in Cairo also said they were committed to achieving a truce, while Israel warned that it would not negotiate under fire.
Israel accused Hamas of breaching a 72-hour truce early yesterday after militants fired two rockets.
Prime Minister Benjamin Netanyahu ordered the military to retaliate "forcefully to the Hamas breach of the ceasefire".
The violence ended a three-day lull in four weeks of fighting between Israel and Hamas that has killed at least 1,894 Palestinians and 67 people on the Israeli side, almost all soldiers.
The United Nations says at least 1,354 of the Palestinians killed in the fighting since July 8 were civilians, including 447 children.
In Gaza, some families who had returned home trickled back to shelter in UN-run schools after Palestinian militants fired rockets at Israel and Israel retaliated from the skies.
"Of course we're all scared, I'm scared, my children are scared, my wife is scared," Abdullah Abdullah, 33, told AFP at the school.
The Israeli army said Palestinian militants fired 35 rockets into the Jewish state, wounding a civilian and a soldier in the south, and that "terror sites" had been targeted in Gaza.
The army banned all gatherings larger than 500 people within 40 kilometres of Gaza and said kindergarten and summer camps could only operate if there was a bomb shelter nearby.
In Gaza, the interior ministry and witnesses said Israeli warplanes struck targets in Jabaliya in the north, Gaza City and in the centre of the Palestinian enclave.
Witnesses also reported artillery fire east and north of Gaza City.
Israel launched an air campaign on July 8, followed by a ground offensive designed to destroy Hamas's arsenal of rockets and its network of tunnels stretching into Israel.
"We will continue to strike Hamas, its infrastructure, its operatives and restore security for the state of Israel," said army spokesman Lieutenant Colonel Peter Lerner.
Egypt, mediating talks to end the Gaza conflict, called for an extension of the ceasefire, with the foreign ministry saying progress had been made in the negotiations.
The head of a Palestinian delegation in Cairo said they were committed to achieving a truce.
"We told the Egyptians (mediators) we are sitting here to achieve a final agreement that restores the rights" of Palestinians, Azzam al-Ahmed told reporters.
A Palestinian official said Hamas and Islamic Jihad had first agreed to a ceasefire, but backtracked when there was an alteration in the wording of the agreement regarding Israel's blockade of Gaza.
Hamas did not claim responsibility for any of yesterday's attacks.
Hamas and Palestine Liberation Organisation officials laid out a number of demands, including the lifting of Israel's eight-year blockade and the building of a sea port. They also want Israel to free some 125 key prisoners.
Despite withdrawing all its troops from Gaza by the time the truce began on Tuesday, Israel has retained forces along the border, ready to respond to any resumption of fighting.