TEL AVIV: Palestinian militants Hamas fired a barrage of rockets at Israel's economic hub Tel Aviv on Tuesday in retaliation for an Israeli strike that destroyed a tower block in Gaza, as the foes traded their heaviest fire for several years.

The sharp escalation, triggered by violence in Jerusalem, has killed at least 30 Palestinians in the blockaded Gaza Strip and three Israelis, and wounded hundreds more.

"This is just the beginning" of Israel's strikes, Defence Minister Benny Gantz warned.

Hamas leader Ismail Haniyeh vowed that "if Israel wants to escalate, we are ready for it."

The UN envoy for Middle East Peace, Tor Wennesland, warned that Israel and Hamas were heading towards "full scale war".

In the crowded, Israeli-blockaded enclave of Gaza, 10 children and one woman were among those killed since Monday night.

A further 203 people were reported wounded from the ongoing Israeli air strikes, many rescued from the smouldering ruins of buildings.

In Israel, sirens sounded as Hamas rockets rained down, and some of those unable to make it to underground shelters took cover under bridges.

"It was scary," said Haim Roy Ben Shlomo, 38, resident of Ramat Gan near Tel Aviv, adding he had heard "several loud shots, or booms, above our heads."

An Israeli woman was killed as rockets hit Rishon Letzion on the coastal city's southern edge, while in nearby Holon, AFP footage showed a burnt-out bus as rescue workers cleaned up debris.

The rocket fire forced Israel to suspend flights at its main airport of Ben Gurion, near Tel Aviv.