"We are waiting to see what our political leadership decides about a potential ground" incursion, army spokesperson Richard Hecht told journalists.

"This has not been decided yet... But we are preparing for a ground manoeuvre if it is decided," he added.

The army has deployed tens of thousands of troops to the border with the Gaza Strip as it continues with a withering air campaign it says targets Hamas infrastructure, commanders and operating centres in the enclave.

The air strikes came in response to a surprise assault on Saturday by Hamas fighters that left more than 1,200 people killed in Israel.

Israel's air campaign has also so far left about 1,200 people dead in the Gaza Strip, according to the Hamas-affiliated health ministry.

"We are preparing ourselves for the next stages of war... to prepare for multiple operative contingency plans," Hecht said.

He said the possible operation "could be from the air, it could be combined from the sea (and) air".

On Thursday, Israel and Hamas traded more fire, with AFP journalists witnessing several air strikes targeting two Palestinian refugee camps in the Gaza Strip.

Israel has also imposed a "complete siege" on the Palestinian territory, cutting off electricity, water and fuel supplies into Gaza.

Israeli Energy Minister Israel Katz said earlier on Thursday that the supplies will not be resumed until Hamas militants free all the hostages held in the Gaza Strip.