The Israeli government formally declared war on Sunday and gave the green light for “significant military steps” to retaliate against Hamas for its surprise attack.
The declaration came as the military tried to defeat fighters still in southern towns and intensified its bombardment of the Gaza Strip.
The toll passed 1,000 dead and thousands wounded on both sides.
More than 24 hours after Hamas launched its unprecedented incursion out of Gaza, Israeli forces were still trying to defeat the last groups of militants in several towns.
At least 700 people have reportedly been killed in Israel, a staggering toll on a scale the country has not experienced in decades, and more than 300 have been killed in Gaza as Israeli air strikes hit the territory.
The Israeli rescue service Zaka said its paramedics removed about 260 bodies from a music festival attended by thousands that came under attack.
The total figure is expected to be higher as other paramedic teams were working in the area.
Video on social media and Israeli news outlets showed dozens of festival-goers running through an open field as gunshots rang out. Many hid in nearby fruit orchards or were gunned down as they fled.
The declaration of war portended greater fighting ahead, and a major question was whether Israel would launch a ground assault into Gaza, a move that in the past has brought intensified casualties.
Meanwhile, in northern Israel, a brief exchange of strikes with Lebanon’s Hizbullah militant group fanned fears that the fighting could expand into a wider regional war.
Authorities were still trying to determine how many civilians and soldiers were seized by Hamas fighters during the mayhem and taken back to Gaza.
From videos and witnesses, the captives are known to include women, children and the elderly.
The leader of the Palestinian Islamic Jihad group, Ziad Nakhaleh, said his group, which took part in the attack, is holding more than 30 Israelis, among dozens he said were captive in Gaza.
He said they would not be released until all Palestinian prisoners in Israeli jails are freed.
US secretary of state Antony Blinken said as many as 1,000 Hamas fighters were involved in the assault, a high figure that underscored the extent of planning by the militant group ruling Gaza.
The gunmen attacked for hours, shooting civilians in towns, along roads and at a techno music festival being held in the desert near Gaza.
Israel has hit more than 800 targets in Gaza so far, its military said, including air strikes that levelled much of the town of Beit Hanoun in the enclave’s northeast corner.
Warplanes fired tons of explosives on 120 targets, Israeli Rear Admiral Daniel Hagari told reporters, saying Hamas was using the town as a staging ground for attacks.
There was no immediate word on casualties, and most of the community’s population of tens of thousands of people are likely to have fled before the bombardment.
In Gaza, the tiny enclave of 2.3 million people sealed off by an Israeli-Egyptian blockade for 16 years since the Hamas takeover, residents feared an intensified onslaught.
Israeli strikes flattened a number of residential buildings. Some 74,000 displaced Gazans were staying in 64 shelters, with the number expected to increase.
The UN agency for Palestinian refugees, UNWRA, said a school sheltering more than 225 people took a direct hit. It did not say where the fire came from.
Several Israeli media outlets, citing rescue service officials, said at least 700 people have been killed in Israel, including 44 soldiers.
The Gaza health ministry said 313 people, including 20 children, were killed in the territory.
Some 2,000 people have been wounded on each side.
An Israeli official said security forces have killed 400 militants and captured dozens more.
The exchange of fire with Hizbullah added to concern that the conflict could spread.
Hizbullah fired dozens of rockets and shells on Sunday at three Israeli positions in a disputed area along the border, and the Israeli military fired back using armed drones.
Iranian-backed Hizbullah is estimated to have tens of thousands of rockets at its disposal.
Since its brutal 2006 war with Israel, Hizbullah has stayed on the sidelines amid previous outbreaks of Israeli-Hamas fighting. But if destruction in Gaza escalates, it may feel pressure to intervene.
The security cabinet also approved “significant military steps”. The steps were not defined, but the declaration appears to give the military and prime minister Binyamin Netanyahu a wide mandate.
Speaking on national television on Saturday, Mr Netanyahu said Hamas “will pay an unprecedented price”. He further warned: “This war will take time. It will be difficult.”
In a statement, his office said the aim will be the destruction of Hamas’ “military and governing capabilities” to an extent that prevents it from threatening Israelis “for many years”.
Israelis were still reeling from the breadth, ferocity and surprise of the Hamas assault.
The group’s fighters broke through Israel’s security fence surrounding the Gaza Strip early on Saturday.
Using motorcycles and pickup trucks, even paragliders and speedboats on the coast, they moved into nearby Israeli communities – as many as 22 locations.
The high death toll and slow response to the onslaught pointed to a major intelligence failure.
The presence of hostages in Gaza complicates Israel’s response. Hamas officials have said they will seek the release of thousands of Palestinian prisoners, and Israel has a history of making heavily lopsided exchanges to get captive Israelis home.
The military has confirmed that a “substantial” number of Israelis were abducted on Saturday without giving an exact figure. – AP