Gaza was hit by at least 50 airstrikes, according to reports.World leaders have urged Israel to show restraint after it threatened to step up action against Hamas after being assaulted with 130 rocket attacks and continued threats for further aggression.
Israel has approved the call-up of 30,000 reservists as it moves troops towards Gaza.
It increases the prospect of a ground war – while Palestinian militants fired rockets at Tel Aviv, Israel’s main commercial city, for the first time in 20 years.
Sky’s Middle East Correspondent Sam Kiley said: “In British terms, the number (of reservists) is pretty close to 10 brigades – a vast number of troops. These will be armour, infantry and specialists in support, but most likely to fill in the gaps likely to be left as troops are moved down towards Gaza.
“There’s already been an increase in movement of ground troops close to Gaza, the movement of tanks and so on.
“If there is going to be a ground offensive, those troops have got to come from somewhere else and they would need to be back-filled.
“So, in all likelihood, this is all part of the military planning for a ground assault into Gaza, should the Israeli prime minister so order.
“It’s part of the plan, but that order has not yet been given. But this is a strong indication that Israeli troops are preparing to go into the Gaza Strip.”
France says its President, Francois Hollande, has begun talks with Israeli PM Benjamin Netanyahu to avoid an escalation in the violence. And Russian President Vladimir Putin has urged both sides to exercise restraint.
Earlier, Palestinian militants in the Gaza Strip fired missiles at Tel Aviv, Israel’s largest city, in a significant escalation in the conflict.
One fell in an open area near Rishon Lezion on the outskirts of Tel Aviv and caused no damage or injuries.
Air raid sirens later sounded in Tel Aviv and witnesses said they heard an explosion. But a military spokesman said that rocket had landed in the sea.
With claims that Palestinian militants fired nearly 150 rockets on Thursday, killing three people, defence officials said Israel was prepared to launch a ground invasion into Gaza, if necessary.
Mr Netanyahu said the army was prepared for a “significant widening” of its Gaza offensive. In a televised address, he said: “We will not tolerate a situation in which Israeli citizens are threatened by rocket fire.”
Three people were killed in the Israeli town of Kiryat Malahi when a rocket hit an apartment block.
The casualties were the first since Israel’s airstrikes on the Gaza Strip on Wednesday which killed Hamas’ top military commander Ahmed al Jaabari.
The White House said the US strongly condemned the rocket fire from Gaza into Israel.
Spokesman Jay Carney said there is “no justification” for the violence perpetrated by Hamas and other terrorist organisations.
Britain’s Foreign Secretary William Hague sais Hamas bears the “principal responsibility” for the spiralling violence.
Mr Hague said Hamas should stop attacking southern Israel immediately and called on Israel to do its utmost to reduce tension and avoid civilian casualties.
“It is imperative to avoid a spiral of violence,” he said. “The escalation of this conflict would be in no one’s interest, particularly at a time of instability in the region.”
Egypt’s President Mohamed Morsi has rejected what he called Israel’s aggression in Gaza, saying it threatened to destabilise the region. He has ordered his prime minister Hesham Kandil to lead a delegation to Gaza on Friday.
Egypt’s Islamist administration has close ties with the Hamas movement and recalled its ambassador on Wednesday in protest at the Israeli action.
US President Barack Obama and UN Secretary General Ban Ki-moon both telephoned Mr Netanyahu ahead of an urgent UN Security Council meeting on the deteriorating situation.
According to the White House, Mr Obama reiterated US support for Israel’s right to self-defence against rocket attacks from the Gaza Strip but urged Israel to avoid civilian casualties in the Palestinian territory.
They agreed that Hamas must stop the attacks, which have seen hundreds of rockets fired into Israel over the last five days, in order to allow tensions to ease.
Mr Ban told the Israeli PM of his expectation that “Israeli reactions are measured so as not to provoke a new cycle of bloodshed,” the UN said.
He also expressed his concerns about “an alarming escalation of indiscriminate rocket fire from Gaza into Israel”.
So far, at least 15 people, including Mr Jaabari, have been killed in more than 50 Israeli airstrikes – codenamed Operation Pillar Of Defence. Two young children were among the dead.