The United Nations says the number of displaced people in Gaza has risen to more than 123,000 as a result of the fighting between Israel’s military and Hamas.

By late Sunday, retaliatory Israeli airstrikes in response to Hamas attacks had destroyed 159 housing units across Gaza and severely damaged 1,210 others, according to the United Nations Office for the Coordination of Humanitarian Affairs.

The UN agency for Palestinian refugees said a school sheltering more than 225 people took a direct hit.

Several Israeli media outlets, citing rescue service officials, said at least 700 people have been killed in Israel, including 44 soldiers.

APTOPIX Israel PalestiniansFire and smoke rise following an Israeli airstrike in Gaza City on Sunday (Fatima Shbair/AP)

The Gaza Health Ministry said 413 people, including 78 children and 41 women, were killed in the territory. An Israeli official said security forces had killed 400 militants and captured dozens more ahead of intensified bombardments on Monday.

Around 2,000 people have been wounded on each side.

An estimated 1,000 Hamas fighters took part in Saturday’s initial attacks from Gaza, according to the Israeli military

The number of Hamas fighters involved in the initial incursion underscored the extent of planning by the militant group ruling Gaza, which has said it launched the attack in response to mounting Palestinian suffering under Israel’s occupation and blockade of Gaza.

Israel – which declared war on Hamas on Sunday – hit more than 800 targets in Gaza in response, their military said, including airstrikes that levelled much of the town of Beit Hanoun in the enclave’s northeast corner.

“Our task is to make sure that Hamas will no longer have any military capabilities to threaten Israel with this,” said spokesperson Jonathan Conricus in a video tweeted by Israel’s military. “And in addition to that, we will make sure that Hamas is no longer able to govern the Gaza Strip.”

Canada Israel PalestiniansPeople take part in a protest for Palestine in Montreal, on Sunday (Graham Hughes/The Canadian Press/AP)

Israeli Rear Admiral Daniel Hagari told reporters Hamas was using Beit Hanoun as a staging ground for attacks.

There was no immediate word on casualties for the airstrike and most of the community’s population of tens of thousands had likely fled beforehand.

“We will continue to attack in this way, with this force, continuously, on all gathering (places) and routes” used by Hamas, Rear Admiral Hagari said.

Meanwhile, Hamas and the smaller Islamic Jihad group claimed to have taken captive more than 130 people from inside Israel and brought them into Gaza, saying they would be traded to release thousands of Palestinians imprisoned by Israel.

The Israeli military said only that the number of captives is “significant.”

Israel Palestinians Photo GalleryPolice officers evacuate a woman and a child from a site hit by a rocket fired from the Gaza Strip, in Ashkelon, southern Israel, on Saturday (Tsafrir Abayov/AP)

Israel has carried out major military campaigns over the past four decades in Lebanon and Gaza that it portrayed as wars, but without a formal declaration.

The Security Cabinet also approved “significant military steps.”

The steps were not defined, but the declaration appears to give the military and Prime Minister Benjamin Netanyahu a wide mandate.

In a statement, Mr Netanyahu’s office said the aim will be the destruction of Hamas’ “military and governing capabilities” to an extent that prevents it from threatening Israelis “for many years.”

The Israeli rescue service Zaka said its paramedics removed about 260 bodies from a music festival attended by thousands who were attacked.

The total figure is expected to be higher as other paramedic teams work in the area.