What happened in Israel? Everything we know about the Hamas attack.

Israel has pounded the Palestinian enclave of Gaza, killing hundreds of people in retaliation for one of the bloodiest attacks in its history when Islamist group Hamas killed 700 Israelis and abducted dozens more.

Hamas fighters' rampage through Israel towns on Saturday was the deadliest such incursion since Egypt and Syria's attacks in the Yom Kippur war 50 years ago and has threatened to ignite another conflagration in the never-ending conflict.

In response, Israeli air strikes on Sunday hit housing blocks, tunnels, a mosque and homes of Hamas officials in Gaza, killing more than 400 people, including 20 children, in keeping with Prime Minister Benjamin Netanyahu's vow of "mighty vengeance".

"The price the Gaza Strip will pay will be a very heavy one that will change reality for generations," said Defence Minister Yoav Gallant in the town of Ofakim, which suffered casualties and had hostages taken.

Beyond blockaded Gaza, Israeli forces and Lebanon's Iran-backed Hezbollah militia exchanged artillery and rocket fire, while in Egypt, two Israeli tourists were shot dead along with a guide.

Appeals for restraint came from around the world, though Western nations largely stood by Israel while Iran, Hezbollah and protesters in various Middle Eastern nations lauded Hamas.

In southern Israel on Sunday, Hamas gunmen were still fighting Israeli security forces more than 24 hours after their surprise, multi-pronged assault of rocket barrages and bands of gunmen who overran army bases and invaded border towns.

Israel's military, which faces awkward questions for not thwarting the attack, said it had regained control of most infiltration points along security barriers, killed hundreds of attackers and taken dozens more prisoner.

The military said it had deployed tens of thousands of soldiers around Gaza, a narrow strip of land that is home to 2.3 million Palestinians, and was starting to evacuate Israelis around the frontier.

Israel has not released an official toll but its media said at least 700 people were killed, children among them. Military spokesperson Daniel Hagari called it "the worst massacre of innocent civilians in Israel's history".

At least three Americans were among those killed by Hamas gunmen, CNN reported, citing an internal US memo.

The shocking flare-up may undermine US-backed moves towards normalising relations between Israel and Saudi Arabia - a security realignment that could threaten Palestinian hopes of self-determination and hem in Hamas' main backer, Iran.

Palestinian fighters took dozens of hostages to Gaza, including soldiers and civilians, children and the elderly. A second Palestinian militant group, Islamic Jihad, said it was holding more than 30 of the captives.

The capture of so many Israelis, some pulled through security checkpoints or driven bleeding into Gaza, is another conundrum for Netanyahu after past episodes when hostages were exchanged for many Palestinian prisoners.

US Defence Secretary Lloyd Austin said Washington would  send multiple military ships and aircraft closer to Israel as a show of support and would also begin providing fresh munitions to its closest Middle Easy ally.

In Gaza, Hamas spokesman Hazem Qassem condemned the US announcement as "an actual participation in the aggression against our people" and said the group would not be intimidated.

Hamas fired more rocket salvoes into Israel on Sunday.

Israeli air strikes on Gaza destroyed Hamas' offices and training camps, but also houses and other buildings. The Palestinian health ministry said 413 Palestinians, including 78 children, were killed and 2,300 people wounded since Saturday.

The United Nations said at least 70,000 Palestinians in Gaza are seeking shelter in schools it runs. It appealed for the creation of humanitarian corridors to bring food into Gaza.

The escalation follows surging violence between Israel and Palestinian militants in the Israeli-occupied West Bank, where a Palestinian authority exercises limited self-rule, opposed by Hamas that wants Israel destroyed.

Conditions in the West Bank have worsened under Netanyahu's hard-right government, with more Israeli raids and assaults by Jewish settlers on Palestinian villages, and the Palestinian Authority called for an emergency Arab League meeting.

Peacemaking has been stalled for years, with Israeli politics distracted this year by internal wrangling over Netanyahu's plans to overhaul the judiciary.

The United States led Western denunciations of Hamas' attacks, with President Joe Biden issuing a blunt warning to Iran and others: "This is not a moment for any party hostile to Israel to exploit these attacks."

In response, Israeli Prime Minister Benjamin Netanyahu launched retaliatory air strikes into Gaza, saying the country is "at war".

Israeli media reported at least 700 Israelis were killed, while Gazan health officials said more than 400 Palestinians were killed in Israel's retaliatory air strikes on Gaza City taking the death toll to over 1000. There are a further 2300 injured.

As warning sirens wailed across southern and central Israel, including in Jerusalem, Israeli media reported gun battles between bands of Palestinian fighters and security forces in towns in southern Israel. Israel's police chief said there "21 active scenes" in southern Israel, indicating the extent of the conflict.

In Gaza, people rushed to buy supplies in anticipation of days of conflict ahead. Some evacuated their homes and headed for shelters.

Palestinian media also reported that a number of Israelis had been taken captive by fighters and Hamas media circulated video footage apparently showing a destroyed Israeli tank.

The Israeli military was aware of reports of captives, a security source said, but provided no further details. In a briefing with reporters, an Israeli military spokesman declined to comment. 

In Gaza, the roar of rocket launches could be heard and residents reported armed clashes along the separation fence with Israel, near the southern town of Khan Younis, and said they had seen significant movement of armed fighters.

Israel's ambulance service said teams had been dispatched to areas in southern Israel near Gaza and residents were warned to stay inside.

The attack came a day after Israel marked the 50th anniversary of the 1973 war that brought the country to the verge of catastrophic defeat in a surprise attack by Syria and Egypt. 

On Saturday, Prime Minister Anthony Albanese condemned the attacks, describing the reignited conflict as a "very dark 24 hours".

Mr Albanese said no Australians, including ADF personnel, were caught up in the attacks in Israel, but conceded it was still too early to get an accurate assessment.

He said the government stood with Israel.

"This is an abhorrent attack on Israel. This is indiscriminate. Civilians being targeted, killed and murdered, and as well, many of them being taken as hostages," he told ABC's Insiders program on Sunday.

Smoke and flame rise after Israeli air forces targeting a shopping centre in Gaza Strip, Gaza on October 7, 2023. Israeli airstrikes on Gaza Strip launched after a Hamas offensive has killed at least 232 Palestinians, the territory's Health Ministry said on Saturday. Image: Ashraf Amra/Anadolu Agency/Getty Images.

The last major flare-up between Israel and Hamas was a 10-day war in 2021, but the conflict between Israel and Palestine has been an ongoing territory dispute since the late 1800s.

As the Zionist movement emerged among Jews, it called for establishing a Jewish homeland in Palestine. 

After World War II, during which more than 6 million Jews were slaughtered, the call for a Jewish state intensified and eventually came to pass.

In 1947, the United Nations voted in favour of a plan to divide Palestine into three sections:

• The Jewish state of Israel;
• The Arab state of Palestine;
• And a Special International Regime for the city of Jerusalem to be administered by the United Nations.

Palestinians objected and argued the UN had no right to split up their country's land, however, Israel was declared an independent Jewish state a year later and a prime minister was swiftly appointed.

Since the United Nations' plan was enacted, there have been numerous wars between the two states. Borders have shifted many times and among the disputes over territories, Jerusalem is the most contentious. Israel and Palestine cite it as their true capital.

With AAP.

Feature Image: Getty.