Thousands of Palestinian Muslims gathered at the al-Aqsa mosque compound in Jerusalem early on Thursday to take part in prayers marking the end of the Muslim holy month of Ramadan.

This year Eid al-Fitr celebrations are more sombre, following days of violence in Jerusalem that has spilled over to Gaza, with Hamas militants firing rockets and Israel launching punitive air strikes.

In Gaza, residents braced for more Israeli air strikes, while people in Israeli towns within range of Gaza's rockets also waited to see what the day would bring.

Meanwhile, Israeli Prime Minister Benjamin Netanyahu condemned outbreaks of communal violence in Israeli towns with mixed Jewish and Arab populations, saying: "Nothing can justify a lynching of Jews by Arabs and nothing can justify a lynching of Arabs by Jews."

Eid al-Fitr, the holiday marking the end of a month of day-long fasting for Ramadan, is usually a festive time when families shop for new clothes and gather for large feasts.

But in Gaza, residents braced for more devastation after days in which militants fired one barrage of rockets after another and Israel carried out waves of air strikes.

The last three wars between Israel and Gaza's militant Hamas rulers were largely confined to the impoverished and blockaded Palestinian territory and Israeli communities on the frontier.

But the latest fighting has rippled further into the country than any conflict for the past two decades.

Since the rockets began on Monday, Israel has toppled two high-rise apartment buildings housing Hamas facilities, after warning civilians to evacuate.

Hamas, the Islamic militant group that seized power in Gaza from rival Palestinian forces in 2007, urged the faithful to mark communal Eid prayers inside their homes or the nearest mosques instead of out in the open, as is traditional.

Gaza militants continued to bombard Israel with nonstop rocket fire throughout the day and into early Thursday.

The attacks brought life to a standstill in southern communities near Gaza, but also reached as far north as the Tel Aviv area, about 70 kilometres north, for a second straight day.

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Israel began diverting some incoming flights from Ben Gurion International Airport, near Tel Aviv, to the Ramon airfield in the country's far south, the Transportation Ministry said.

British Airways said it was halting flights into Ben Gurion, saying: "The safety and security of our colleagues and customers is always our top priority."

The Israeli military said more than 1,600 rockets had been fired since Monday, with 400 falling short and landing inside Gaza.

Israel's missile defences intercepted 90 per cent of the rockets, while Israeli air strikes struck around 600 targets inside Gaza, the military said.

Gaza's Health Ministry said the death toll had risen to 69 Palestinians, including 16 children and six women.

Islamic Jihad confirmed the deaths of seven militants, while Hamas acknowledged that a top commander and several other members were killed.

Israel says the number of militants killed is much higher than Hamas has acknowledged.

Seven people have been killed in Israel, including four people who died on Wednesday.

Among them were a soldier killed by an anti-tank missile and a six-year-old child hit in a rocket attack.

While United Nations and Egyptian officials have said that ceasefire efforts are underway, there are no signs of progress.

Israeli television's Channel 12 reported late on Wednesday that Mr Benjamin Netanyahu's Security Cabinet authorised a widening of the offensive.

UN Secretary-General Antonio Guterres condemned the "indiscriminate launching of rockets" from civilian areas in Gaza toward Israeli population centres, but he also urged Israel to show "maximum restraint".

US President Joe Biden called Mr Netanyahu to support Israel's right to defend itself.

Ugly clashes erupted across the country late on Wednesday. Jewish and Arab mobs battled in the central city of Lod, the epicentre of the troubles, despite a state of emergency and night-time curfew.

In nearby Bat Yam, a mob of Jewish nationalists attacked an Arab motorist, dragged him from his car and beat him until he was motionless.

In the occupied West Bank, the Israeli military said it thwarted a Palestinian shooting attack that wounded two people.

The Palestinian Health Ministry said the suspected gunman was killed. No details were immediately available.

Still unclear is how the fighting in Gaza will affect Mr Netanyahu's political future.

He failed to form a government coalition after inconclusive parliamentary elections in March, and now his political rivals have three weeks to try to form one.

His rivals have courted a small Islamist Arab party.

But the longer the fighting lasts, the more it could hamper their attempts at forming a coalition.

AP/ABC