Palestinian militants have escalated rocket fire from Gaza and Israel says it will keep up military and economic pressure, after days of bloodshed.
The flare-up of violence puts a renewed peace process in peril
At least seven were killed on Thursday in more Israeli raids on the territory controlled by militant group Hamas, a total of over 30 deaths in three days.
Hamas has fired salvoes of unguided rockets causing injuries in Israel.
The sharp rise in violence in the Gaza Strip comes after a recent US-led push for progress in peace talks.
In Israel's air strikes on Gaza on Thursday:
- A militant leader and his wife were killed as they drove their car
One or two militants from the group Islamic Jihad were killed in another strike; a mother and her young son, riding on a donkey cart close by, were also killed
In the latest strike, at least two Hamas militants travelling in a car were also killed.
On Wednesday, Israeli air attacks killed five people, including at least three civilians. At least 31 Palestinians have been killed in Israeli air assaults since Tuesday.
Israel says its military action is intended to stamp out daily rocket and mortar fire into Israel by Palestinian militants.
In recent months, Hamas has been observing an informal moratorium on attacking Israel, but over the past two days it has launched over 100 rockets into Israel.
Two Israeli civilians were lightly injured in the latest salvoes, after 10 people in the Israeli town of Sderot were lightly wounded on Wednesday.
Shops, businesses and government offices have been closed across Gaza and the West Bank in protest at the latest Israeli military action.
The UN Secretary General Ban Ki-moon was "troubled by the heavy bloodshed", said his spokesperson in a statement.
He urged an "immediate halt to Palestinian sniper and rocket attacks, as well as maximum restraint by the Israeli Defence Forces".
Palestinian militants have sent a volley of rockets into Israel
But in a speech quoted by Reuters, the Israeli Prime Minister Ehud Olmert said a "war is going on in the south, every day, every night.
"We cannot and we will not tolerate this unceasing fire at Israeli citizens... so we will continue to operate."
But reports suggested a ground assault on Gaza was not imminent.
Earlier, Deputy Prime Minister Haim Ramon said there was no need to end the siege on the impoverished Mediterranean strip, or end the boycott of Hamas, which has been shunned by Israel and its allies as a terrorist organisation.
"The military and economic pressure as well as the international isolation of the Gaza Strip will end up producing results," Mr Ramon said in a radio interview.
The US State Department urged Israel to avoid harming civilians, but said it had a right to act in self-defence.
Peril to peace
Last week, a hopeful US President George W Bush was predicting the recently relaunched peace process could result in a deal within a year.
But on Thursday, the Palestinian Liberation Organisation (PLO) headed by Palestinian Authority President Mahmoud Abbas warned of "serious consequences" for the talks if the Israeli strikes continued.
Mr Abbas' spokesman also told news agency AFP "the raids and military escalations aim to deliver a blow" to the negotiations.
Mr Abbas leads the rival Fatah movement, which Hamas ousted from Gaza in June to become the undisputed ruler of Gaza, having previously been part of a unity government with Fatah.
Earlier, Hamas's Damascus-based leader in exile, Khaled Meshaal, called on Mr Abbas to sever the talks.
Mr Abbas telephoned senior Hamas figure Mahmoud Zahhar on Wednesday to offer his condolences on the killing of his son by Israeli forces on Monday.
Correspondents said it was the first such contact since the factional schism, which left Fatah in charge of Palestinian areas of the Israeli-occupied West Bank.