ISRAEL has fired missiles at the homes of four top Hamas leaders in a resumed bombardment of Gaza following a failed Egyptian ceasefire effort.

Health officials said the Palestinian death toll in nine days of fighting had reached 204.

The bombings came after Hamas rejected the Egyptian truce proposal and instead launched more rockets at Israel.

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Israel warned Hamas would pay a high price and also called on tens of thousands of residents in areas close to the Gaza-Israel border to leave their homes, presumably ahead of more air strikes.

Among those ordered to leave were the patients of a rehabilitation hospital. But hospital director Basman Ashi said everyone was staying put and foreign volunteers had arrived to serve as human shields. The Egyptian proposal, initially accepted by Israel, had been the first attempt to end the fighting.

But it unravelled in less than a day, a sign that it will be harder than before to reach a truce. Hamas does not consider Egypt's current rulers, who deposed a Hamas-friendly government in Cairo a year ago, to be fair brokers and violence is bound to escalate in the coming days.

Hamas believes it has little to lose by continuing to fight, while a truce on unfavorable terms could further weaken its grip on the Gaza Strip, a territory it seized in 2007.

Underscoring that position, Gaza militants fired more than 120 rockets and mortar rounds at Israel on Tuesday during what Egypt had hoped would be a period of de-escalation.

An Israeli man in his 30s was killed near the Gaza border as he delivered food to soldiers.

Prime minister Benjamin Netanyahu said after Hamas' rejection of the ceasefire, Israel had "no choice" but to respond more forcefully.

In a TV address, he said: "Hamas chose to continue fighting and will pay the price for that decision. When there is no ceasefire, our answer is fire."

Mr Netanyahu said Israel would have liked to have seen a diplomatic solution.