Israel said its troops had killed dozens of militants in Gaza's north in the past day.
Residents said Israeli tanks had shelled parts of the Al-Bureij refugee camp in the central area. The Gaza health ministry said 207 people had been killed.
in the past 24 hours, bringing the total recorded Palestinian death toll to more than 22,000 in nearly three months of warfare in the Hamas-ruled enclave.
Israeli defence minister Yoav Gallant said the operations in the south around Khan Younis were focused on areas above the tunnel network where Hamas leaders were believed to be hiding.
"We are reaching them all ways. There already is engagement and there are hostages there too sadly," he told troops in Gaza in footage shown on Israeli television.
"This will continue as high-intensity efforts in the heart of Khan Younis," he said.
The latest fighting took place after Israel announced plans to pull back some troops, signalling a new phase in the war against Hamas amid global concern over the plight of Gaza residents.
Israeli bombardments have reduced much of the territory to rubble and engulfed its 2.3 million residents in a humanitarian disaster in which many thousands have been left destitute and threatened by famine due to a lack of food supplies. Israeli officials say the offensive has many months to run.
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