Palestinians, who had taken refuge in Rafah, leave the city to return to Khan Yunis. AFP

Israeli leaders were preparing Monday for military operations in Gaza's southern city of Rafah, where most of the Palestinian territory's population has fled after six months of fighting.

International pressure has mounted on Israel to bring an end to the war, with its main ally the United States last week demanding a ceasefire and hostage release deal along with ramped-up aid deliveries.

Israel pulled its forces out of the southern Gaza Strip on Sunday.

But Israel's Defence Minister Yoav Gallant said troops had left the city of Khan Yunis "to prepare for future missions, including... in Rafah".

Prime Minister Benjamin Netanyahu said Israel was "one step away from victory".

After troops left areas in and around the largely destroyed Khan Yunis, a stream of displaced Palestinians walked there, hoping to return to their homes from temporary shelters in Rafah, a little further south.

People walk past destroyed buildings along a road in Khan Yunis on Sunday. AFP

Muhammad Yunis, 51, a Palestinian in northern Gaza, saw nothing but loss.

"Isn't the bombing, death and destruction enough?" he asked. "There are bodies still under the rubble. We can smell the stench."

'No longer safe'

In Israel, people gathered Sunday at the site of the Nova desert music festival to pay tribute to the young revellers who died or were kidnapped there on October 7.

At the festival alone, 364 people were killed.

In Jerusalem, thousands gathered outside Israel's parliament to demand the return of the hostages.

People ride on a tractor picking up salvaged items from a damaged building in Khan Yunis on Sunday. AFP

The war in Gaza has raised fears that conflict could engulf the wider region.

An adviser to Iran's supreme leader warned Sunday that Israeli embassies were "no longer safe" after a strike in Syria that Tehran blamed on Israel killed seven Revolutionary Guards members.

Israeli defence chief Gallant said Sunday the army had "finished all its preparations to react to any scenario that could arise regarding Iran".

The Israeli army said it had reached "another phase" of preparation for war on its northern border with Lebanon, where it has spent months exchanging fire with Iran-backed Hezbollah.

Israeli fighter jets struck a compound of Hezbollah's elite Radwan Forces "in the area of Khiam", near the Israeli-occupied Golan Heights, as well as a command centre near Toura, northeast of the coastal city of Tyre, the army said.

Agence France-Presse