Palestinians wounded in the Israeli bombardment of the Gaza Strip are brought to the hospital in Deir al Balah. AP

Israeli forces were encircling southern Gaza's main city on Wednesday, battling Palestinian group Hamas through streets and buildings in some of the most intense combat of the two-month war.

The focus of the conflict has shifted into the besieged territory's south following fierce fighting and bombardment that reduced much of the north to rubble and forced nearly two million people to flee their homes.

Israeli tanks, armoured personnel carriers and bulldozers were seen on Tuesday near southern Gaza's city of Khan Yunis, forcing already displaced civilians to pack up and flee again, witnesses told the media.

"Our forces are now encircling the Khan Yunis area in the southern Gaza Strip," Israel's army chief Herzi Halevi said late on Tuesday.

A screen grab shows a member of the Civil Defence rescue team working in a collapsed building in Gaza. Reuters

"We have secured many Hamas strongholds in the northern Gaza Strip, and now we are operating against its strongholds in the south."

The fighting on Tuesday was "the most intense day since the beginning of the ground operation" in late October, the army's Southern Command chief Major General Yaron Finkelman said.

Israel has vowed to destroy Hamas and free 138 hostages still held after scores were freed during a short-lived truce.

Sources in Hamas and Islamic Jihad, another Palestinian militant group, told the media their fighters were battling Israeli troops early on Wednesday in a bid to prevent them from breaking into Khan Yunis and surrounding areas.

An injured Palestinian woman is stretchered onto an ambulance at the Rafah border crossing on Tuesday. AFP

According to the Hamas-run government media office, dozens of people were killed and injured in heavy strikes on areas east of Khan Yunis.

Meanwhile, areas in the central and northern Gaza Strip were still coming under bombardment, according to Hamas.

The Hamas-run health ministry said air strikes on the Nuseirat refugee camp in central Gaza killed six people and injured 14 others.

Agence France-Presse