People in Gaza City look at a building destroyed by an Israeli air strike, 19 July. Photo: BBC
Gaza has suffered the highest death toll since Israel's offensive began, with at least 87 people reported killed on Sunday - 67 of them in one area.
Palestinian President Mahmoud Abbas said the deaths in the Shejaiya district east of Gaza City were a "massacre". Witnesses spoke of bodies lying in the streets.
A humanitarian truce was agreed in the area, but lasted less than an hour.
The Israeli military said that 13 of its soldiers had been killed overnight.
The ceasefire was meant to last from 13:30 to 15:30 local time (10:30-12:30 GMT), according to an Israeli military spokesman.
But a BBC team on the ground reported an exchange of fire less than an hour after the truce began.
Both sides blamed the other for violating the truce.
Israel earlier said it had expanded its operation - launched 13 days ago - against Hamas militants.
The BBC's Yolande Knell, in Gaza City, says there have been scenes of panic with thousands of residents fleeing the Shejaiya area.
The death toll rose sharply over the weekend, with the number of Palestinians killed more than 425 since the operation began, according to Palestinian health officials.
They say the number of wounded from the operation now stands at more than 3,000.
Paramedics said that rescue workers have so far not been able to get to the eastern part of Shejaiya, an area very close to the Israeli border and about three kilometres (1.2 miles) away from Gaza City, which has seen heavy shelling. Sunday's death toll is expected to rise.
The majority of those killed are civilians, the UN says.
Five Israeli soldiers and two Israeli civilians have died since Prime Minister Benjamin Netanyahu launched the military offensive on 8 July.
The Israel Defense Forces (IDF) sent ground troops into Gaza on Thursday after days of heavy air and naval barrages failed to stop rocket fire from Gaza.
Israel says the operation is necessary to target Hamas tunnel networks, which it says it could not do from the air alone.
Lt Col Peter Lerner, an IDF spokesman, said the offensive was being expanded "to restore security and stability to Israel's residents and citizens".
Meanwhile, the UN warned it was running out of supplies to help more than 50,000 Palestinians who have sought shelter at its schools in Gaza.
A UN official said the number of people fleeing was much higher than expected, with both the Israeli and Egyptian borders closed to Gazans.
Qatar is expected to host a meeting between President Abbas and Ban Ki-moon on Sunday before the UN chief continues on to Kuwait, Egypt, Israel, the Palestinian Territories and Jordan.
Abbas is also due to meet Hamas leader Khaled Meshaal.
Hamas rejected an Egypt-brokered ceasefire last week, saying any deal with Israel must include an end to a blockade of Gaza.