Israeli troops battled Hamas militants Thursday in the heart of southern Gaza's main city where a suspected mastermind of the October 7 attacks is believed to be hiding, while pressing their offensive across the besieged territory.

Breaking through Hamas's defences of Gaza's second largest city, Israeli troops, tanks, armoured personnel carriers and bulldozers rolled into Khan Yunis, forcing already displaced civilians to flee again, witnesses said.

Hamas said late Wednesday on Telegram its fighters were engaged in fierce battles against Israeli troops "on all axes of the incursion into the Gaza Strip", as it claimed they destroyed two dozen military vehicles in Khan Yunis and Beit Lahia in the north of the territory.

Earlier, the Israeli army said it had pierced defensive lines and carried out "targeted raids in the heart of the city", where they found and destroyed 30 tunnel shafts.

Prime Minister Benjamin Netanyahu said in a video statement that Israeli forces were closing in on the home of Hamas's chief in the Gaza Strip Yahya Sinwar, with a spokesman saying it is "underground" in the Khan Yunis area.

Sinwar stands accused of being one of the masterminds of the 7 October attacks on Israel that killed 1,200 people, mostly civilians, according to Israeli authorities, and saw around 240 hostages taken.

Israel declared war on Hamas after the deadliest attack in its history, vowing to eradicate the group and bring home all the hostages.

Sinwar has not been seen in public during the war, and Israel has named him and the leader of Hamas's armed wing, Mohammed Deif, as its top military targets.

But humanitarian organisations have warned the spread of the war into the south of the Gaza Strip will leave civilians who fled the north, much of which is now destroyed, with nowhere to go.

"We are devastated, mentally overwhelmed," said Khan Yunis resident Amal Mahdi. "We need someone to find us a solution so we can get out of this situation."

The latest toll from the Hamas government said the war has killed more than 16,000 people in Gaza, most of them women and children.

'Where to go?'

Much of northern Gaza has already been reduced to rubble by fierce fighting and bombardment, displacing 1.9 million people according to UN figures.

Many civilians fled to Khan Yunis when Israel ordered them to evacuate the north of the territory earlier in the war.

They are now being pushed further south to Rafah on the border with Egypt.

"There was bombardment, destruction, leaflets dropping, threats, and phone calls to evacuate and leave Khan Yunis," said Khamis Al-Dalu, who told AFP he was first displaced from Gaza City, and then from Khan Yunis to Rafah.

"Where to go? Where do you want us to go for God's sake? We left Khan Yunis and now we are in tents in Rafah."

And Israeli bombardments have followed them there.

A strike on a residential district in Rafah left 17 dead and dozens injured late Wednesday, the Hamas health ministry said, and an AFP journalist saw the wounded, including children, being taken to a local Kuwaiti hospital.

Meanwhile, Al Jazeera television network said one of its journalists had lost 22 members of his family in a strike in the northern refugee camp of Jabalia.

The Israeli army said Wednesday it had struck about 250 targets in Gaza over the past 24 hours and that troops had found a major arms depot "in the heart of a civilian population" near a clinic and school in the north of the territory.

"The depot contained hundreds of RPG missiles and launchers of various types, dozens of anti-tank missiles," explosives and drones, it said in a statement.

AFP footage from Wednesday showed smoke trails after rocket fire from Rafah towards Israel.

According to the Israeli military, three Israeli soldiers were killed in fighting in Gaza on Wednesday.

'Minimal' fuel increase

Mass civilian casualties in the war have sparked global concern, heightened by dire shortages caused by an Israeli siege that has seen only limited supplies of food, water, fuel and medicines enter.

UN Secretary-General Antonio Guterres said he expects "public order to completely break down soon due to the desperate conditions" in Gaza, with "potentially irreversible implications for Palestinians as a whole."

Israeli Foreign Minister Eli Cohen on Wednesday lashed out against Guterres, saying his tenure was "a danger to world peace" after he invoked a rare UN procedure over the Gaza war.

"His request to activate Article 99 and the call for a ceasefire in Gaza constitutes support of the Hamas terrorist organization," Cohen wrote on X.

"We, too, want this war to end," Israeli government spokesman Eylon Levy told reporters, "But it can only end in a way that ensures that Hamas can never attack our people again."

On Wednesday, Israel approved a "minimal" increase in fuel supplies to Gaza, to prevent a "humanitarian collapse and the outbreak of epidemics in the south of the Gaza Strip", according to Netanyahu's office.

New settlements approved

The war has sparked fears of a wider regional conflict, with near-daily exchanges of fire with Iran-backed Hezbollah across Israel's border with Lebanon and a surge of deadly violence in the occupied West Bank.

On Wednesday, Israel said a missile fired at the Red Sea town of Eilat "was successfully intercepted" after sirens blared in the resort.

In the occupied West Bank, Israeli troops raided two refugee camps and killed three Palestinians, one aged 16, according to the Palestinian health ministry and Wafa news agency.

Palestinian authorities say more than 250 Palestinians have been killed by Israeli fire or settler attacks since the war began. 

Israeli authorities meanwhile approved the construction of more than 1,700 new homes, a non-governmental organisation said Wednesday, a move constituting the expansion of settlements in occupied east Jerusalem.

Half the "new neighborhood" comprising 1,738 housing units will be in the city's annexed east, the Israeli NGO Peace Now said.

"If it weren't for the war (between Israel and Hamas), there would be a lot of noise. It's a highly problematic project for the continuity of a Palestinian state between the southern West Bank and east Jerusalem," Peace Now's Hagit Ofran told AFP.