"The civilian population here continues to be hammered by this massive war and they are simply in disbelief that this is continuing despite the UN call for an immediate and complete ceasefire."
Israeli aircraft struck about 70 locations overnight, including a mosque in southern Gaza that it said was used as an arms depot, the military said.
UN compound hit
A UN compound in Gaza City also came under artillery fire on Thursday.
"We are in this area that has come under artillery bombardment, this is one of the densely-populated areas of the city itself, and the shrapnel has been flying around us all morning," John Ging, director of UN relief operations, said.
Al Jazeera's Ayman Mohyeldin, reporting from Gaza City, said that the Israeli shelling was the closest to the centre of the city that it had been during the Israeli offensive.
"There have, no doubt, been a series of air strikes that have destroyed so many of the buildings here in the heart of Gaza City, but this is the first time we have seen this kind of shelling," he said.
"We are getting some very horrific accounts from people trapped in buildings unable to leave."
Mays al-Khatib, a Gaza resident, was speaking to Al Jazeera on the telephone when her building came under attack.
"The shelling is continuous since last night, we are here in this place, we are around 500 families here under bombardment," she was narrating, when the telephone went dead.
Al Jazeera sources said she survived, though her building collapsed.
Some frightened civilians gathered in the Al-Quds hospital in Tal al-Hawa on the southwestern outskirts of Gaza City.
"I brought the children to the hospital because they were scared at home, but here they are even more terrified," Hossein, who took his wife and five children to the hospital shortly after the tanks rolled in after dawn, said.
|Thousands of people were reportedly fleeing as Israeli forces moved into Gaza City [AFP]
"The house next door was completely destroyed in the fighting so we had to get out of there. We can't take this any longer. Look at my children, they're trembling."
Israel also hit smuggling tunnels from Egypt into the southern Rafah area of Gaza.
"They used bombs that went deep into the tunnels and shook the whole Rafah refugee camp. The land trembled beneath our feet," Bassam Abdallah, a local Palestinian cameraman, said.
One of Israel's stated objectives is stop the smuggling of weapons across the border to Palestinian fighters.
The tunnels are also used to bring in basic supplies for the territory which has been suffering under an Israeli blockade.
At least 1,054 Palestinians have been killed since Israel began its assault on the Gaza Strip on December 27, medics said.
More than 4,800 people have been injured in the violence.
Thirteen Israelis have been killed in the conflict, including three civiliansAid boat blocked
However, the two sides appeared to be inching closer towards a ceasefire deal on Thursday.
Amos Gilad, a senior Israeli envoy, was expected to meet Egyptian mediators in Cairo after a Hamas delegation gave its view on the proposed agreement.
Ban Ki-moon, the UN secretary-general, was also trying to halt the fighting as he travelled to Tel Aviv and Ramallah to met Israeli and Palestinian leaders.
Meanwhile, a Greek-flagged vessel trying to break the blockade of the Gaza Strip with medical aid for the Palestinians was turned back to Cyprus by an Israeli naval vessel.
Huwaida Arraf, an organiser with the US-based Free Gaza Movement, said that the boat was intercepted about 100 miles northeast of Gaza.
"They got very close and they threatened that if we continued they would open fire on us," she told the Reuters news agency.
"They surrounded us with about four warships making it very difficult to navigate. They said they would use all means to keep us out of Gaza."