UN humanitarian chief Valerie Amos has expressed extreme concern at the situation in Gaza, describing a ceasefire as "vital".
She said the conflict meant 44 percent of Gaza was a no-go area for Palestinians, and residents were running out of food.
More than 710 Palestinians and 30 Israelis have been killed in the past 16 days of fighting, officials say.
Israel's ground operations and air strikes have continued, and more Hamas rockets have been fired into Israel.
Israel launched its military offensive on 8 July with the declared objective of stopping rocket fire from Gaza.
Speaking on Thursday, Valerie Amos said: "We have over 118,000 people now who are sheltering in UN schools... people are running out of food. Water is also a serious concern."
The situation in Gaza was "terrible" and "dire", she added.
The UN's Office for the Coordination of Humanitarian Affairs (OCHA) says a 1.9 mile (3km) wide strip, encompassing 44 percent of Gaza, has been designated as a no-go zone by the Israeli military.
While no-one denied Israel the right to defend itself, there was serious concern for the repercussions for civilians on the ground, she said.
Meanwhile, the US Federal Aviation Authority lifted a ban on US airlines flying into Tel Aviv, which came into force on Tuesday after a rocket landed about a mile (1.6km) away from Ben Gurion airport
However, several European airlines have continued to avoid landing in Tel Aviv.
Israeli PM Benjamin Netanyahu said on Thursday he regretted each Palestinian civilian death, but said they were "the responsibility of Hamas".
He was standing beside UK Foreign Secretary Philip Hammond, who said the cycle of violence had been triggered by Hamas "firing hundreds of rockets at Israeli towns and cities indiscriminately". Hammond also emphasised that the UK was "gravely concerned by the ongoing heavy level of civilian casualties."
The Israeli leader was deeply critical of a vote by the UN Human Rights Council for an official investigation into alleged war crimes in Gaza, describing the decision as "grotesque" and "a travesty of justice".
— The FAA (@FAANews) July 22, 2014
'Lift the blockade'
Meanwhile, Khaled Meshaal, leader of Islamist militant group Hamas, said there could be no ceasefire to ease the conflict in Gaza without an end to Israel's blockade.
"We will not accept any initiative that does not lift the blockade on our people and that does not respect their sacrifices," he said.
Israel imposed restrictions on the Gaza Strip in 2006 after Hamas abducted Israeli soldier Gilad Shalit. The measures were tightened by Israel and Egypt in 2007 after Hamas ousted rival Fatah and forcibly took control in Gaza after winning elections the year before.
Hamas and Fatah announced a reconciliation deal in April, but the move was condemned by Israel which regards Hamas as a terrorist group.
JUST IN: FAA lifts ban on US airline flights to and from Israel's Ben Gurion Airport. pic.twitter.com/083klIfMoL
— ABC News (@ABC) July 24, 2014
Israel says 32 soldiers and two Israeli civilians have been killed since 8 July.
A Thai worker was also killed when a rocket fired from Gaza landed near the southern Israeli city of Ashkelon on Wednesday.
UN Secretary General Ban Ki-moon expressed "outrage and regret" at rockets which were placed inside a UN-run school in Gaza.
"Those responsible are turning schools into potential military targets, and endangering the lives of innocent children," Ban's spokesperson said in a statement on Wednesday.
Don Dahler reports from empty Ben Gurion airport in Israel this AM. FAA ban runs til 12:15pmET but could be extended. pic.twitter.com/HXVEInb7jd
— CBS This Morning (@CBSThisMorning) July 23, 2014