Hamas resumed rocket fire on Israel after rejecting its offer to extend a humanitarian ceasefire, the latest setback in efforts to negotiate an end to the Gaza war.

Despite the Hamas rejection, Israel's Cabinet decided to extend a truce for 24 hours, until 9pm GMT.

However, it warned that its military would respond to any fire from Gaza and would continue to demolish Hamas military tunnels during this period.

The temporary lull yesterday saw Palestinians return to neighbourhoods reduced to rubble and allowed medics to collect close to 150 bodies, Palestinian health official Ashraf al-Kidra said.

With the retrieval of the corpses, the number of Palestinians killed reached 1,047 in 19 days of fighting, while more than 6,000 were wounded, he said.

US Secretary of State John Kerry and European foreign ministers, meeting in Paris, had hoped to transform the ceasefire into a more sustainable truce. That effort was thrown into doubt with the Hamas rejection of the extension.

Hamas spokesman Sami Abu Zuhri said any truce must include a withdrawal of Israeli forces from Gaza, and that tens of thousands of displaced people must be allowed to return to their homes.

Israel's current terms are "not acceptable," he said.

In the northern Gaza town of Beit Hanoun, scores of homes had been pulverised, wreckage blocked roads and power cables dangled in the streets.

Hardest hit were areas close to the border with Israel, areas from where Gaza militants usually fire rockets.

Manal Kefarneh, 30, wept as she inspected her damaged home.

On an unfinished top floor, she and her husband had been raising chickens. The couple collected the dead and replenished water for the living in hopes they will survive the war.

"What did we do to deserve this?" she asked.

Israeli strikes have destroyed hundreds of homes, including close to 500 in targeted hits, and forced tens of thousands of people to flee, according to Palestinian rights groups.

Across Gaza, 147 bodies were pulled from the rubble yesterday, officials said. In southern Gaza, a tank shell killed 20 members of an extended family who sought refuge inside a building, they said.

Israel says it is doing its utmost to prevent civilian casualties, including sending evacuation warnings to residents in targeted areas, and blames Hamas for putting civilians in harm's way.

Israel has lost 42 soldiers and two civilians, and a Thai worker has been killed.

Israeli politician Ofer Shelah of the centrist Yesh Atid party said Israeli troops are "fighting with an enemy dug in within the civilian population, dug in underground or within the houses there".

Referring to the widespread destruction, he said: "Those are the consequences of such a fight."

The military took some Israeli journalists into the Gaza border areas where troops were operating.

Footage broadcast on Israeli television station Channel 10 showed homes booby-trapped with explosives, as well as grenades, mines and rockets stored there. Tunnels opened up inside houses.

Soldiers said some buildings blew up after being hit by gunfire from all the explosives inside.

Colonel Ofer Vinter, head of the Givati infantry brigade, said almost every house was booby-trapped with explosives and that Gaza fighters "emerge from the ground all the time".

Standing over a tunnel concealed in a house, he said: "We cannot leave here before we finish dealing with all the tunnels."

Israel launched a major air campaign in Gaza on July 8 and later sent ground troops into the Hamas-ruled territory in an operation it said was aimed at halting Palestinian rocket fire and destroying cross-border tunnels it views as a threat.

On Friday, Israel rejected a Kerry proposal for a week-long truce because it had no provisions for the Israeli military continuing to demolish tunnels.

Under the proposal, talks would begin during the temporary truce on easing the border blockade of Hamas-ruled Gaza.

Hamas has said it would not halt fire until it wins guarantees that the border blockade, enforced by Israel and Egypt, would be lifted.

French foreign minister Laurent Fabius said in Paris that he and his counterparts from other nations are calling on both sides to negotiate a sustainable ceasefire.

Such a truce should meet Israeli security concerns, but also "the Palestinians' expectations in terms of economic development and access to Gaza," he said.

Israel initially decided to extend yesterday's 12-hour truce by four hours, to 9pm GMT. Hamas swiftly rejected the idea of an extension.

Shortly after the Hamas announcement, Gaza militants fired eight rockets and three mortars at Israel, the military said.

Gaza militants said they fired 42 rockets, including two that were aimed at Tel Aviv, Israel's second largest city, where police dispersed a peace rally attended by several thousand people.

In Gaza, a 36-year-old Palestinian man was killed by a sniper near the central Gaza town of Deir el-Balah shortly after the 12-hour truce ended.

Meanwhile, anger over Israel's Gaza operation has sparked a series of protests in the West Bank.

Since Thursday, nine Palestinians have been killed in clashes between Israeli forces and Palestinian protesters.

Among those were two Palestinians killed by army fire yesterday, including a 23-year-old in the town of Jenin and a 16-year-old near the town of Bethlehem, hospital officials said.