Thousands of Israeli troops and scores of tanks have advanced into Gaza battling Hamas and surrounding the main city on a mission to end rocket attacks.
Up to 23 Palestinians were killed by tank shells or missiles fired from warplanes as families fled battlefield towns in packed trucks and cars to escape the biggest Israeli military operation since its 2006 war in Lebanon.
International efforts to halt the conflict floundered.
The UN Security Council failed to agree the wording of a statement on the conflict, with the US giving strong backing to Israel.
Israeli troops and tanks took over areas south and north of Gaza City.
Heavy fighting was also reported around the northern towns of Beit Lahiya, Beit Hanun and Jabaliya.
Explosions shook the enclave, home to 1.5m people, as the Israeli army took control of main roads.
There was a constant clatter of automatic gunfire in the territory which has been under a tight Israeli blockade for months.
In the hours since Israel launched its night-time offensive yesterday, at least 23 people have been killed, adding to the 485 Palestinians killed in eight days of air strikes when another 2,500 were wounded, Gaza medics said.
More than 80 children are among the dead.
Some 30 Israeli soldiers and 'several' Hamas fighters were reported to have been wounded since the ground offensive began, the army and medics said.
Israel has denied Hamas claims that soldiers had been killed.
The Al-Jazeera Arabic news channel reported that one Israeli had been killed but there was no immediate comment from Israel.
A Hamas spokesman, speaking as troops crossed the border, said Gaza will become 'a cemetery' for Israeli soldiers.
Witnesses said Israeli infantry and tanks had taken control of the Salaheddine Road, the main highway along the length of Gaza.
Protester killed in West Bank
In the occupied West Bank there are reports that Israeli soldiers shot and killed a Palestinian man during clashes.
A 22-year-old was shot in the head in the West Bank city of Qalqilya during a protest against Israel's military operation in Gaza.
The Israeli army said soldiers had shot a Palestinian during a riot near Qalqilya after warning the crowd to disperse.
Gaza offensive 'unavoidable'
Israel's Defence Minister Ehud Barak said before a cabinet meeting in Tel Aviv that 'the operation will be expanded and intensified as much as necessary. War is not a picnic.'
Briefing reporters after the meeting, an Israeli government official said: 'Israel has no intention to return to occupy the Gaza Strip.'
Government secretary Ovid Yehezkel said the incursion could last a long time, but added: 'The operation is aimed solely to achieve the goals set forth by the cabinet.'
Israeli Prime Minister Ehud Olmert said the Gaza offensive had been 'unavoidable' but Israel would not open a new front in the north.
Israel began 'Operation Cast Lead' on 27 December with the declared aim of ending rocket attacks into Israel from Gaza that resumed after a six-month truce ended.
Rocket fire from Gaza over the past week has killed four people in Israel.
Twenty-five rockets and mortar rounds were fired across the border today and hit the towns of Sderot and Ashdod, although no casualties were reported.
Schools in southern Israel remain closed.
Streets clear as soon as siren alerts of incoming rockets are sounded by authorities.
Ireland to send aid
The Minister for Foreign Affairs expressed grave concern over the Israeli incursion.
Micheál Martin said he regretted the escalation of the conflict and urged Israel to halt its operation and withdraw its forces.
Minister Martin also announced €500,000 in humanitarian aid for Gaza.
France, meanwhile, has criticised the Israeli offensive that Palestinian president Mahmoud Abbas warned would have 'grave consequences' for the region.
French President Nicolas Sarkozy was to hold talks tomorrow with Mr Olmert in Jerusalem and Mr Abbas in Ramallah.
Turkey also condemned the air and ground offensive and called for it to end immediately.
British Prime Minister Gordon Brown said the Israeli attack had created a 'very dangerous moment' in the conflict.
The EU's foreign policy chief Javier Solana called for an immediate ceasefire, adding that European nations were ready to contribute international monitors to help keep the peace.
Israel has called a snap general election for 10 February, and the current leadership has widespread public support for the offensive.
RTE