Palestinian militant group Hamas launched a large-scale surprise attack against Israel on Saturday, firing thousands of rockets from Gaza and sending ground units to kill or abduct people as Israel retaliated with air strikes.

At least 70 people were reported killed in Israel, while Gaza authorities released a death toll of 198 in the bloodiest escalation in the wider conflict since May 2021, with hundreds more wounded on both sides.

"We are at war," said Israeli Prime Minister Benjamin Netanyahu as the military launched a series of air strikes against targets of Iran-backed Hamas in the blockaded coastal enclave where black smoke billowed into the sky.

"The enemy will pay an unprecedented price," the right-wing veteran Israeli premier vowed after Hamas launched its first such combined air, sea and ground offensive, half a century after the outbreak of the 1973 Arab-Israeli war.

The Islamist group started the surprise attack around 6:30 am (0330 GMT) with thousands of rockets aimed as far as Tel Aviv and Jerusalem, some bypassing the Iron Dome defense system and hitting buildings.

Hamas fighters — travelling in vehicles, boats and even using motorized paragliders — breached Gaza's security barrier and attacked nearby Israeli towns and military posts, sparking gun battles as panicked residents hid out in bunkers.

Bodies were seen lying on the streets of the town of Sderot near Gaza.

"Send help, please!" one Israeli woman sheltering with her two-year-old child pleaded as militants outside opened fire at her house and tried to break into their safe room, Israeli media reported.

AFP journalists witnessed armed Palestinians gathered around an Israeli tank that was on fire, and others driving a seized Israeli Humvee into Gaza.

Gates of hell

Israeli army Major General Ghasan Alyan warned Hamas had "opened the gates of hell" and would "pay for its deeds".

The army said its forces were battling Palestinian militants on the ground in several locations near the Gaza Strip, in an operation labelled "Swords of Iron".

Hamas claimed to have captured several Israelis — raising the specter of a far wider escalation in the Israeli-Palestinian conflict as international concern mounted.

The group released a video showing its fighters holding three men dressed in civilian clothes who were labelled "enemy soldiers" in the video caption.

The escalation follows months of rising bloodshed, mostly in the occupied West Bank, and tensions around Gaza's border and at contested holy sites in Jerusalem.

Hamas labelled its attack Operation Al-Aqsa Flood and called on "resistance fighters in the West Bank" as well as in "Arab and Islamic nations" to join the battle.

"We decided to put an end to all the crimes of the occupation (Israel)," said its armed wing, the Ezzedine al-Qassam Brigades, claiming to have fired more than 5,000 rockets.

Army spokesman Richard Hecht said Israel had counted at least 2,200 rockets aimed at its territory.

Bodies in the streets

Air raid sirens wailed across southern and central Israel, as well as in Jerusalem, where AFP journalists heard multiple rockets being intercepted by air defense systems.

In Tel Aviv, an AFP photographer saw a gaping hole in a building, with residents boarding a bus to seek safety in a hotel.

Rocket impacts left cars burning beneath residential buildings in the Israeli city of Ashkelon, north of Gaza.

Among the dead was the president of a regional council for Israeli communities northeast of Gaza, who the council said was killed in a gun battle with attackers.

A Thai national working in the Israeli settlement of Mivtahim, just outside Gaza, was "shot in the leg," said Thailand's Foreign Ministry.

Hecht said Hamas had conducted a combined raid using "paragliders, through the sea and on the ground", but would not be drawn on reports that Israelis had been captured.

Netanyahu vowed that the Israeli response will be of "a magnitude that the enemy has not known".

Dangerous precipice

Hamas took control of Gaza in 2007, leading to Israel's crippling blockade of the impoverished enclave of 2.3 million people.

Israel and Hamas have since fought several wars. The last major military exchange, in May, killed 34 Palestinians and one Israeli.

In northern Gaza on Saturday, hundreds fled their homes, carrying food and blankets, to move away from the Israel border, an AFP correspondent said.

At Gaza City's Al-Shifa hospital an AFP journalist saw eight bodies in the morgue, while another reporter witnessed the funeral of a ninth person killed in Khan Yunis in southern Gaza.

In Israeli-annexed east Jerusalem, some Palestinian residents cheered and blew their car horns as sirens blared.

Western capitals roundly condemned the attacks by Hamas, which the European Union, United States and Israel consider a terrorist group.

UN Security Council chair Brazil said it would call an emergency meeting.

But Hamas drew support from other foes of Israel, with Iran's supreme leader declaring he was "proud" of the Hamas action.

Lebanese militant group Hezbollah, which fought a devastating war against Israel in 2006, hailed the "heroic operation on a grand scale".

US President Joe Biden was briefed on the "appalling Hamas terrorist attacks," said the White House, stressing that Washington would ensure Israel has the means to defend itself.

European Commission President Ursula von der Leyen called the attack "terrorism in its most despicable form".

UN Middle East peace envoy Tor Wennesland said the assault had led to "a dangerous precipice" and called for all sides to "pull back from the brink".

Violence between Israel and the Palestinians has been surging since early last year.

Before Saturday's clashes, at least 247 Palestinians, 32 Israelis and two foreigners had been killed so far this year, including combatants and civilians on both sides, according to Israeli and Palestinian officials.

The vast majority of fatalities have occurred in the West Bank, which has been occupied by Israel since the 1967 Arab-Israeli War.