"I ordered (the army) to seize more territory in Gaza... The more Hamas refuses to free the hostages, the more territory it will lose, which will be annexed by Israel," he said in a statement.

Should Hamas not comply, Katz also threatened "to expand buffer zones around Gaza to protect Israeli civilian population areas and soldiers by implementing a permanent Israeli occupation of the area".

Israel's renewed air and ground offensive in Gaza shattered the relative calm that had reigned in the territory since a January 19 ceasefire and drew widespread condemnation.

Israel resumed intensive bombing of Gaza on Tuesday, citing deadlock in indirect negotiations on next steps in the truce after its first stage expired early this month.

Gaza's civil defence agency said Thursday that 504 people had been killed since the bombardment resumed, more than 190 of them minors.

The death toll is among the highest since the war began more than 17 months ago with Hamas's attack on Israel.

Katz vowed to step up the assault, using civilian as well as military "pressure points" to defeat Hamas.

"We will intensify the fight with aerial, naval and ground shelling as well as by expanding the ground operation until hostages are freed and Hamas is defeated, using all military and civilian pressure points."

He said these included implementing President Donald Trump's proposal for the United States to redevelop Gaza as a Mediterranean resort after the relocation of its Palestinian inhabitants to other Arab countries.

On Thursday, the Israeli military said troops had begun "conducting ground activity" in the Shabura area of Rafah, Gaza's southernmost city near the Egyptian border.

It said it had also closed off the territory's main north-south route as it expanded the ground operations which resumed on Wednesday.