The bloody violence came one day after Palestinian president Mahmud Abbas demanded an immediate ceasefire to Israel's offensive, launched with the twin purposes of retrieving a captured soldier and stopping rocket attacks.

At least 137 Palestinians have now been killed in the four-week assault that has been increasingly sidelined as the world focuses on a deadlier conflict in Lebanon, triggered by the capture of two soldiers by Hezbollah militants.

While world diplomats in Rome tried but failed to agree on calls for a ceasefire in Israel's war on the Shiite militant group, 21 Palestinians were killed in multiple Israeli attacks east and north of Gaza City, medics said.

Abbas condemned what he called "unacceptable acts" and charged that "Israel is clearly violating the Geneva convention" in attacking civilian areas.

Only hours before the latest violence flared, Abbas demanded an immediate ceasefire in Lebanon and the Palestinian territories following talks with US Secretary of State Condoleezza Rice on Tuesday.

"It is important to end the Gaza crisis," said Rice, adding that "the Palestinian people have lived too long in violence".

At least seven of the dead were militants, including four from the armed wing of the governing Hamas and another from the Popular Resistance Committees, two of three groups to claim the June 25 raid in which a soldier was snatched.

But a seven-month-old Palestinian baby girl was also killed, along with two three-year-old girls and a 17-year-old boy.

Medics said most of the bodies brought into hospital after the attacks were ripped to pieces, as paramedics took at least 69 wounded people, including two journalists working for Palestine TV, away for treatment.

An Israeli military spokesman said the air force had carried out more than a dozen air strikes targeting "armed gunmen" east of Gaza City as troops mounted a fresh incursion in the outer fringes of the largest Palestinian city.

Gunfire erupted on the ground as Israel stepped up its offensive after a relative lull that has nonetheless put soldiers back in impoverished Gaza less than 10 months after they ended a 38-year occupation.

Security sources reported heavy exchanges of fire as Israeli troops thrust about two kilometres (just over a mile) from the border with the Jewish state, which has ignored repeated international calls for restraint.

"I can't confirm casualties but if there were we sincerely regret that," said a military spokeswoman when asked about the deaths of a baby and toddler in the Jabaliya refugee camp.

"I would say it is increasingly unfortunate that Palestinian terrorists operate," in civilian areas, she added.

Despite the fact that halting rocket attacks is one of the principal motives of the operation, militants on Wednesday fired a further four rockets into the Jewish state, none of which caused any damage or casualties.

Palestinian prime minister Ismail Haniya, whose Hamas-led government has been directly targeted in the offensive, threatened that Israel was responsible for the fate of its missing soldier.

"Military force will not manage to break the will of our people," he declared during a graduation ceremony at the Islamic University, which was itself bombed by Israel on grounds that it was used to plan "terror attacks".

Living conditions for the 1.4 million people in densely packed Gaza have badly deteriorated since the West suspended direct aid to the Hamas-led government, plunging the territory deeper into financial crisis.

At least 137 Palestinians and one Israeli soldier have now died since Israel stepped up its ground offensive on July 5 to recover the soldier and end the firing of rockets at Israeli territory, according to an AFP count.

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