Smoke billows over Khan Yunis in the southern Gaza Strip during Israeli bombardment on Friday. AFP

Israel bombed Gaza on Saturday as the United Nations warned the Palestinian territory has become "uninhabitable" after three months of fighting that threatens to engulf the wider region.

AFP correspondents reported Israeli strikes early Saturday on Gaza's southern city of Rafah, where hundreds of thousands of people have sought shelter from the fighting.

Civilians continue to bear the brunt of the conflict, with the UN warning of a deepening humanitarian crisis as famine looms and disease spreads.

Abu Mohammed, 60, who fled to Rafah from the central Bureij refugee camp, told AFP Gaza's future was "dark and gloomy and very difficult".

With much of the territory already reduced to rubble, UN humanitarian chief Martin Griffiths said Friday that "Gaza has simply become uninhabitable".

The father of Yousef and Noura Abu Sanjar reacts next to their bodies after they were killed in an Israeli strike. Reuters

The UN's children's agency warned that clashes, malnutrition and a lack of health services had created "a deadly cycle that threatens over 1.1 million children" in Gaza.

Israeli forces were continuing "to fight in all parts of the Gaza Strip, in the north, centre and south", military spokesman Daniel Hagari said late Friday.

Hagari said Israeli forces were maintaining a "very high state of readiness" near the border with Lebanon following the killing of a top Hamas commander in a strike in Beirut.

Israel has not claimed responsibility for the strike, but a US defence official told AFP that Israel carried it out.

Fighting rages

AFP correspondents reported Friday that Israeli strikes had hit the southern cities of Khan Yunis and Rafah as well as parts of central Gaza.

Mourners react next to the bodies of Palestinians killed in an Israeli strike in Rafah, Gaza Strip, on Friday. Reuters

A hospital in the central city of Deir al-Balah reported that 35 people had been killed there.

The Israeli army said its forces had "struck over 100 targets" across Gaza in the previous 24 hours, including military positions, rocket launch sites and weapons depots.

The health ministry in the Hamas-run territory said it had recorded 162 deaths over the same period.

A fighter jet bombed the central area of Bureij overnight, killing "an armed terrorist cell", the army said, after what it described as an attempted attack on an Israeli tank.

And a number of Palestinians were killed in clashes in Khan Yunis, a city that has become a major battleground, the army said.

Troops also uncovered tunnels under the Blue Beach Hotel in northern Gaza that had been used "by terrorists as shelter from where they planned and executed attacks", according to the army.

AFPTV footage on Friday showed entire families, seeking safety from the violence, arriving in Rafah in overloaded cars and on foot, pushing handcarts stacked with possessions.

"We fled Jabalia camp to Maan (in Khan Yunis) and now we are fleeing from Maan to Rafah," said one woman who declined to give her name. "(We have) no water, no electricity and no food."

Smoke billows over the Palestinian territory during Israeli bombardment on Friday. AFP

The Palestinian Red Crescent reported renewed shelling and drone fire in the area around Al-Amal hospital in Khan Yunis after seven displaced people, including a five-day-old baby, were killed while sheltering in the compound.

"We are facing a humanitarian catastrophe due to the spread of epidemics, with the hospital overcrowded with displaced people," said a spokesman for Al-Aqsa Martyrs hospital in central Gaza.

French Foreign Minister Catherine Colonna, meanwhile, slammed a proposal by two Israeli ministers to resettle Gazans outside the territory.

"It's not up to Israel to determine the future of Gaza, which is Palestinian land," Colonna told CNN on Friday.

Agence France-Presse