Israel retaliates with Gaza strikes after Palestinian militants kill ...

Israel says it is now at war with Hamas, launching air strikes on Gaza and vowing to inflict an "unprecedented price" after dozens of Hamas militants broke out of the blockaded Gaza Strip and into nearby Israeli towns, killing hundreds and abducting others in an unprecedented operation.

Key points:Palestinian militants have taken Israeli soldiers and civilians as hostagesAn Israeli army official warned that Hamas had "opened the gates of hell"Hundreds of people in the Gaza Strip have been killed as Israel retaliates with air strikes 

Hamas said it had taken dozens of military and civilian hostages back to Gaza.

The surprise early morning attack — which was backed by a barrage of rockets fired from within Gaza — killed at least 250 people and wounded more than 1,500, according to Israel's national rescue service, during a major Jewish holiday on Saturday local time.

Israel said the Iran-backed group had declared war as its army confirmed fighting with militants in several Israeli towns and military bases near Gaza.

Prime Minister Benjamin Netanyahu vowed to retaliate.

"Our enemy will pay a price the type of which it has never known," he said.

"We are in a war and we will win it."

'The morning of defeat and humiliation'

Hamas leader Ismail Haniyeh said the assault that began in Gaza would spread to the West Bank and Jerusalem.

"This was the morning of defeat and humiliation upon our enemy, its soldiers and its settlers," he said.

"What happened reveals the greatness of our preparation. What happened today reveals the weakness of the enemy."

Israel's national rescue service said at least 200 people were killed and hundreds injured, making it the deadliest attack in Israel in years.

The Israeli military said it had responded with air strikes into Gaza, where witnesses reported hearing heavy explosions and multiple dead and injured being carried into hospitals.

Police officers evacuate residents from a site hit by a rocket fired from the Gaza Strip, in Ashkelon, southern Israel.(AP: Tsafrir Abayov)

At least 232 people in the Gaza Strip have been killed and at least 1,700 injured in Israel’s retaliation, the Palestinian Health Ministry said.

Air strikes in the evening flattened a 14-story residential tower that also holds Hamas offices in central Gaza City.

The Israeli military said navy forces killed dozens of Palestinian militants trying to infiltrate Israel by sea.

Smoke rises following Israeli strikes in Gaza.(Reuters: Mohammed Salem)

Hamas says it is holding dozens of Israeli captives

Hamas deputy chief Saleh al-Arouri told Al Jazeera the group was holding a large number of Israeli captives, including senior officials. He said Hamas had enough captives to make Israel free all Palestinians in its jails.

Israel army spokesman Daniel Hagari confirmed "there are kidnapped soldiers and civilians".

"I can't give figures about them at the moment. It's a war crime committed by Hamas and they will pay the price," he said. 

Palestinians wave their national flag by a destroyed Israeli tank at the Gaza Strip fence.(AP: Yousef Masoud)

Abu Obedia, a Hamas military spokesperson said the captives were being held in "safe places" and militant tunnels.

The militant Islamic Jihad group said it had joined the attacks and was holding several Israeli soldiers captive.

Hamas footage on its Telegram account showed its fighters pulling Israeli soldiers out of a tank.

Gunbattles in Israeli towns

The attack marked an unprecedented infiltration into Israel by an unknown number of Hamas gunmen crossing from the Gaza Strip, and the heaviest blow for Israel in the conflict with Palestinians since the suicide bombings of the Second Intifada some two decades ago.

Israeli army Major General Ghasan Alyan warned Hamas had "opened the gates of hell".

The army said its forces were engaged in live gun battles in several locations near the Gaza Strip, in an operation labelled "Swords of Iron".

Israel's police chief said there were "21 active scenes" in southern Israel.(AP: Ohad Zwigenberg)

Israeli media reported gun battles between bands of Palestinian fighters and security forces in towns in southern Israel.

Israel's police chief said there were "21 active scenes" in southern Israel.

In Gaza, people rushed to buy supplies in anticipation of days of conflict ahead. Some evacuated their homes and headed for shelters.

Israeli Defence Minister Gallant said "troops are fighting against the enemy at every location" and authorised the call-up of reservists.

Emergency personnel work to extinguish a fire after rockets struck Israel. (Reuters: Amir Cohen)

"We were told there are terrorists inside the kibbutz, we can hear gunfire," a young woman named Dvir, from Beeri Kibbutz, told Israeli Army Radio from her bomb shelter.

Hamas media displayed videos of what it said were bodies of Israeli soldiers brought to Gaza by fighters, and Palestinian gunmen inside Israeli homes and touring an Israeli town in jeeps reportedly been driven into Israel by the attackers.

Reuters was not immediately able to verify the footage.

In Gaza, the roar of rocket launches could be heard and residents reported armed clashes along the separation fence with Israel, near the southern town of Khan Younis, and said they had seen significant movement of armed fighters.

Smoke and flames billow after Israeli forces struck a high-rise tower in Gaza City.(Retuers: Ashraf Amra  )

Palestinians in Gaza were bracing for Israel's response.

"We are afraid," Palestinian woman, Amal Abu Daqqa, told Reuters as she left her house in Khan Younis.

US vows defence support for Israel 

The United States on Saturday condemned the attacks by "Hamas terrorists" against Israel and vowed to ensure the key US ally had the means to defend itself.

President Joe Biden described the assault as "horrific" and said that he had spoken to Israeli Prime Minister Benjamin Netanyahu to underline that the United States stood "ready to offer all appropriate means of support".

As the attacks threatened to trigger a wider conflict, Mr Biden warned "against any other party hostile to Israel seeking advantage in this situation".

Mr Biden stressed that Israel — which the United States has supplied with billions of dollars of arms — has "a right to defend itself and its people".

Defence Secretary Lloyd Austin reaffirmed Washington's "unwavering" commitment, saying "over the coming days the Department of Defence will work to ensure that Israel has what it needs to defend itself and protect civilians".

ABC/wires