Israeli forces are actively fighting Hamas in as many as eight locations inside Israel, after the country formally declared war.
Israeli police take cover in Sderot
It comes as the Israel Defence Forces (IDF) said this morning they thought they would be in "a better place", more than 48 hours since the beginning of the surprise attack.
Israeli forces moved to crush fighters still in southern towns and intensified their bombardment of the Gaza Strip with the number of dead reaching 1,100 and thousands wounded on both sides.
Explosions over Gaza City on Sunday. Pic: AP
At least 700 people have reportedly been killed in Israel and more than 493 have died in Gaza as Israel retaliated with airstrikes in an operation which has been dubbed "Swords of Iron".
Damaged building in Ashkelon, Israel. Pic: AP
More than 1,000 Palestinian targets hit - follow live updates
The IDF said it had struck more than 1,000 targets inside the Gaza Strip, including airstrikes that levelled much of the town of Beit Hanoun in the northeast corner.
Other key developments include:
• Hundreds of Israelis are being held hostage by Hamas, including women, children and the elderly;
• Israeli civilians have been gunned down in towns, along roads and at a techno music festival being held in the desert near Gaza;
• The United Nations Security Council opted for no immediate action after an emergency meeting;
• More than 123,000 people have been displaced in Gaza, UN says.
Israel-Hamas War - watch special programme on Sky News tonight at 9pm.
The Israeli rescue service Zaka said its paramedics removed about 260 bodies from a music festival attended by thousands that came under attack.
Israel's Iron Dome anti-missile system intercepts rockets launched from the Gaza Strip
The total number of dead 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.
Palestinians inspect damage in Gaza City
"It's the darkest day in our history," Lieutenant Colonel Jonathan Conricus, spokesperson for the IDF said.
"You could say it's 9/11 and Pearl Harbor together for us," he told Fox News on Sunday.
By late Sunday, Israeli airstrikes destroyed 159 housing units across Gaza and severely damaged 1,210 others, according to the United Nations Office for the Coordination of Humanitarian Affairs.
Hostages have been taken from a number of Israeli cities
The declaration of war foreshadows heavier fighting ahead, and a major question is whether Israel will launch a ground assault into Gaza, a move that in the past has brought increased casualties.
Israeli cities targeted by Hamas rockets
Meanwhile, in northern Israel, a brief exchange of strikes with Lebanon's Hezbollah militant group fanned fears that the fighting could expand into a wider regional war.
Palestinians inspect a mosque destroyed in Israeli strikes in Khan Younis, in the Gaza Strip
During their rampage through southern Israel, militants dragged back into Gaza dozens of captives.
Fighting against Hamas continues in up to eight locations inside Israel after war formally declared
Authorities are still trying to determine how many civilians and soldiers were seized by Hamas fighters 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.