Fighters were still holed up in several locations inside Israel two days after they burst across from Gaza killing 700 Israelis and seizing dozens of hostages in a raid that shattered Israel’s reputation of invincibility.

In Hamas-controlled Gaza, Israel pressed on with its most intensive retaliatory strikes ever, which have killed some 500 people since Saturday. Defence Minister Yoav Gallant said Israel’s blockade would be tightened to prevent food and fuel from being brought into the strip, home to 2.3 million people.

Israel’s chief military spokesman said troops had re-established control of communities inside Israel that had been overrun, but that isolated clashes continued as some Palestinian gunmen remained active.

“We are now carrying out searches in all of the communities and clearing the area,” chief military spokesperson Rear-Admiral Daniel Hagari said.

Earlier, another spokesman, Lieutenant Colonel Richard Hecht, acknowledged that it was “taking more time than we expected to get things back into a defensive, security posture”.

The shocking images of the bodies of hundreds of Israeli civilians sprawled across the streets of towns, gunned down at an outdoor dance party and abducted from their homes were like nothing seen before in the decades-old Israeli-Palestinian conflict.

The announcement that 300,000 reservists had already been activated in just two days added to speculation that Israel could be contemplating a ground assault of Gaza, a territory it abandoned nearly two decades ago.

“We have never drafted so many reservists on such a scale,” Hagari said. “We are going on the offensive.”

Palestinians reported receiving calls and mobile phone audio messages from Israeli security officers telling them to leave areas mainly in the northern and eastern territories of Gaza, and warning that the army would operate there.

Hamas, an armed Islamist group that calls for Israel’s destruction, says its attack was justified by the plight of Gaza under a 16-year blockade and the deadliest Israeli crackdown for years in the occupied West Bank.

“A TOTAL MASSACRE”

Mainstream Palestinian groups who deplored the attacks said the violence was nonetheless predictable, with a peace process frozen for nearly a decade and far-right Israeli leaders talking of annexing Palestinian land once and for all.

Israel and Western countries said nothing justified the intentional mass killing of civilians.

The attackers gunned down scores of young Israelis at an outdoor desert dance party – media reported 260 killed there. A day later dozens of survivors were still emerging from hiding. The site was littered with wrecked and abandoned cars.

“It was just a massacre, a total massacre,” said Arik Nani, who had been celebrating his 26th birthday and escaped by hiding for hours in a field.

In Gaza, footage obtained by Reuters showed dozens of people climbing over collapsed buildings in search of survivors, the air still dusty from impact. Sirens rang out as emergency teams put out cars that had caught fire.

“The man you see is one martyr of dozens. This place is packed with residents and people who were displaced,” a man said in the video as people pulled a body from the rubble.

EGYPTIAN, QATARI MEDIATION

Egypt, which has mediated between Israel and Hamas at times of conflict in the past, was in close contact with the two sides, trying to prevent further escalation, according to Egyptian security sources.

Qatari mediators have held urgent calls with Hamas officials to try to negotiate freedom for Israeli women and children seized by the militant group and held in Gaza, in exchange for the release of 36 Palestinian women and children from Israel’s prisons, a source told Reuters.

The violence jeopardises U.S.-backed moves towards normalising relations between Israel and Saudi Arabia – a security realignment that could have threatened Palestinian hopes of self determination and hemmed in Hamas’s backer Iran.

Fighter jets, helicopters and artillery struck over 500 Hamas and Islamic Jihad targets in the Gaza Strip overnight, with targets including Hamas and Islamic Jihad command centres and the residence of a senior Hamas official, Ruhi Mashtaa.

“The price the Gaza Strip will pay will be a very heavy one that will change reality for generations,” Defence Minister Gallant said in Ofakim, one of the towns that had been attacked.

Israel’s military faces harsh questions for the country’s worst intelligence failure in 50 years.

A ground assault would be a major step for Israel, which has sent troops back into Gaza twice since it abandoned the territory nearly two decades ago, but has tried to avoid reimposing any long-term occupation there.

Israeli officials have not confirmed any plans for a ground assault but have discussed what it might entail. Agriculture Minister Avi Dichter, a member of Prime Minister Benjamin Netanyahu’s security cabinet, likened a possible operation to a 2002 sweep of the West Bank in which Palestinian cities were encircled and then-Palestinian leader Yasser Arafat besieged in his headquarters.

“Israel cannot agree to a situation in which military terrorist organizations will exist at a proximity of a few hundred meters, a kilometer, and so all of these capabilities will be destroyed,” he told Israel’s Channel 12 TV late on Sunday.

Netanyahu’s options may also be curtailed by concern over the fate of Israeli hostages.

In a statement, the Israeli Air Force said it dropped some 2,000 munitions and more than 1,000 ton bombs on Gaza aimed at over 8,000 targets in Gaza in the last 20 hours. Among the targets were three rocket launchers directed at Israel, a mosque where militants were operating and 21 high-rise buildings that served militant activity.

Since Saturday, at least 493 people were killed and more than 2,750 people were wounded, said the Health Ministry in Gaza.

“The Zionist enemy’s military targeting and bombing of homes inhabited by women and children, mosques and schools in Gaza amount to war crimes and terrorism,” Hamas official Izzat Reshiq said in a statement.

Hamas’s main international ally Iran congratulated Hamas on the attack, while denying involvement. Israeli forces and Lebanon’s Iran-backed Hezbollah militia exchanged artillery and rocket fire.

By Henriette Chacar and Nidal al-Mughrabi

(Reporting by Maayan Lubell and Ari Rabinovitch in Jerusalem, Nidal al-Mughrabi in Gaza and Ammar Anwar in Sderot; Additional reporting by Henriette Chacar, Emily Rose and Dan Williams in Jerusalem, Ali Sawafta in Ramallah and Steven Scheer in Modiin, and Washington bureau; Writing by Michael Georgy; Editing by Peter Graff)