Prime Minister Ehud Olmert told his cabinet: "Let it be clear that Israel has no intention to stop the fighting for a single moment."
He spoke as the unrest spread from Gaza to the West Bank and Palestinian president Mahmoud Abbas suspended contact with Israel.
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Caught in the crossfire: A Palestinian girl wounded after a missile strike
Yesterday a 21-month-old girl was among at least ten Palestinians killed. It followed more than 60 deaths on Saturday, one of the bloodiest days in Gaza since the 1980s.
Although many of the dead were Hamas fighters, at least three women and nine children died in Gaza on Saturday.
Israel said it was acting in self-defence to curb daily rocket attacks from the Gaza Strip.
It threatened to intensify its ground and air campaign, despite a UN charge it was using excessive force.
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Taking aim: A militant prepares to fire a rocket propelled grenade
Referring to the rockets, Mr Olmert warned: "If anyone is under the illusion that extending their range will cause us to limit our operations, that's a serious mistake."
However, Palestinian Abu Mujahed, a spokesman for the militants, said an invasion of Gaza would not halt the rockets.
More than 25 were fired at southern Israel yesterday, scoring direct hits on houses in Ashkelon and the town of Sderot. Nine Israelis were slightly wounded.
"The tough Israeli attacks will only make the militants stronger and increase their determination not to stop rocket attacks," Mr Mujahed said in Gaza City.
Across the border Ashkelon's mayor Roni Mahatzri said he was willing to sacrifice his residents' sense of security for the short term, but would not accept the rockets becoming a normal reality.
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On the march: Palestinian Hamas supporters rally in the West Bank town of Hebron
Death toll: Palestinian mourners in a mosque in Rafah, Gaza, with the bodies of six Hamas militants killed in an Israeli army operation
"This is a state of war, I know no other definition for it," said Roni Mahatzri, from his makeshift office in an underground bunker.
"We have no intention of allowing this to become part of our daily routine."
The areas used by the militants to fire rockets have seen fierce battles between Israeli troops backed by tanks and Palestinian gunmen who have laid ambushes for them. Two Israeli soldiers died in the fighting on Saturday.
Many of the Palestinian civilian casualties have occurred when Israeli missiles fired by helicopters, jets and unmanned drones have hit buildings and homes that the army said were used by militants.
Israeli leaders said they did not want to stage a full-scale invasion of the Gaza Strip, but defence minister Ehud Barak said a broad ground operation was "real and tangible". He warned: "We won't shy from it."
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Mourning: Relatives of Israeli soldier Staff Sergeant Eran Dan-Gur at his funeral in Mount Herzl, Jerusalem
Other officials said another option was a major strike on the leadership of Hamas, which took control of Gaza last summer from the more moderate Fatah faction.
Violent protests against Israel's action spread to the West Bank and East Jerusalem. A boy of 13 was shot dead as he tried to cut down a security fence in Hebron.
Earlier yesterday UN Secretary General Ban Ki-moon denounced the Israelis for using excessive force but called the rocket attacks "acts of terrorism".
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Explosive: An Israeli riot police officer throws a smoke grenade towards rioting Palestinians just outside Jerusalem
The EU and the Pope also called for an end to the fighting.
Though Palestinian president Mr Abbas called off peace talks with Israel, he stopped short of declaring dead the U.S.-brokered talks which are opposed by hardliners Hamas.
He later spoke to U.S. Secretary of State Condoleezza Rice and urged her to put pressure on Israel.
A spokesman for Miss Rice confirmed she would go ahead with a visit this week when she will meet Mr Abbas and Mr Olmert.
In Britain, Foreign Secretary David Miliband called on both sides to "step back from the brink".
Sign language: A Lebanese woman protests outside the Arab League headquarters in Beirut
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