GAZA CITY, Palestinian Territories (AFP) -- Israeli warplanes killed 12 Palestinians Tuesday, pounding the Gaza Strip in a new campaign to stamp out Hamas rocket fire as the two sides slid toward another major conflict.

In the most serious flare-up over Gaza since November 2012, it comes as Israel struggles to contain a wave of violence in Arab towns over the grisly murder of a Palestinian teenager by Jewish extremists.

Palestinian president Mahmud Abbas demanded that Israel "immediately stop" its air campaign, dubbed Operation Protective Edge, and asked the world to pressure Prime Minister Benjamin Netanyahu's government.

But Netanyahu was expected to order a "significant broadening" of the operation and instruct the army to "take off the gloves," army radio said, quoting a source close to the premier.

After nearly four weeks of intensifying rocket fire on the south, Israel appeared bent on dealing the Islamist Hamas movement a heavy blow, with the cabinet reportedly authorising the call up of some 40,000 reservists.

In central Gaza, one man was killed near Nusseirat refugee camp, medics said. Witnesses said he was a member of Hamas's armed wing, the Ezzedine al-Qassam Brigades.

Shortly afterwards, another four people were killed when a missile slammed into a car in Gaza City, medics said.

Relatives told AFP the victims were all Hamas militants. One was identified as Mohammed Shaaban, 32,who ran the Brigades' naval unit.

Seven more people were killed and at least 25 wounded when a missile struck a house in Khan Yunis in southern Gaza, medics said. There was no immediate word on their identities.

Hamas spokesman Sami Abu Zuhri warned Israel was "playing with fire" and would pay for its ongoing operations.

Ground assault?

The Israeli army was preparing all options to stamp out rocket fire from Gaza, including a ground assault, a senior official told AFP.

"The army is preparing for all possible scenarios, including an invasion or a ground operation," he said.

Military spokesman General Moti Almoz told the radio "we have been instructed by the political echelon to hit Hamas hard,"  saying the operation would take place "in stages."

He also confirmed Israel was preparing for a possible ground offensive.

"All options are on the table; all these steps are being considered. Two brigades, which are currently stationed around the Gaza Strip, are prepared and ready, and in the coming days, more will arrive," he said.

In a related development, the cabinet authorised the callup of 40,000 reservists, unconfirmed press reports said. Officials refused to comment.

Around Gaza, dozens of tanks and soldiers could be seen massing along the border, AFP correspondents reported.

Defence Minister Moshe Yaalon warned it was likely to be a protracted campaign.

"We are preparing for a campaign against Hamas, which will not end in just a few days," he said in a statement which defined the aim as being "to exact a very heavy price from Hamas."

Restoring deterrence

Since June 12, when the current round of tit-for-tat violence began, more than 250 rockets have hit southern Israel, with another 40 intercepted by the Iron Dome air defence system.

So far no Israelis have been killed.

Since midnight, militants have fired more than 100 rockets, an army spokeswoman told AFP, saying only around 33 of them had hit Israeli territory.

All schools and summer camps were cancelled within a 40 kilometre radius of Gaza, except those being held in protected spaces, army radio reported.

"We have to hit Hamas because our power of deterrence has been reduced," Interior Minister Gideon Saar told public radio.

"No one is enthusiastic about the idea of a military confrontation, but we cannot hesitate any more.

"We cannot restore the calm without proving to Hamas that it is absolutely in its interest to halt attacks on Israel, but to do that, we must hit it sufficiently hard."

The rocket fire drew a strong reaction from Washington and Brussels.

"We strongly condemn the continuing rocket fire into Israel, but we also support Israel's right to defend itself against these attacks," US State Department spokeswoman Jen Psaki said.

On a visit to the south, EU Ambassador Lars Faaborg Andersen also denounced the ongoing fire, expressing the bloc's "unreserved solidarity" with those living there.

"Indescriminate shooting of rockets against innocent civilians can never be a legitimate response," he said in remarks broadcast on army radio.

"It must stop. The situation must be de-escalated."

The latest flare-up comes as Israel arrested six Jewish extremists in connection with the grisly kidnap and murder of the Palestinian teenager, burned alive in a suspected revenge attack the killing of three Israeli youths in the occupied West Bank.

Three of them have confessed, an official told AFP.

The killing sparked five days of clashes between protesters and riot police in annexed east Jerusalem and Arab towns across Israel.

Police arrested another 39 people overnight, raising the overall number of people detained to 299.