Israel gave off signs of a possible ground invasion of the Hamas-run enclave as the next stage in its air and sea offensive billed as a bid to stop Palestinian rocket fire into the Jewish state, while also spelling out its conditions for a truce.
U.S. President Barack Obama said that while Israel had a right to defend itself against rocket salvoes, it would be "preferable" to avoid a military thrust into the Gaza Strip, a narrow, densely populated coastal territory. Such an assault would risk high casualties and an international outcry.
A spokesman for the Hamas-run Interior Ministry said an Israeli missile wrecked the three-storey residential building, killing 11 people, all of them civilians. Medics said four women and four children were among the dead.
The Israeli military had no immediate comment. Prime Minister Benjamin Netanyahu said earlier that he had assured world leaders that Israel was doing its utmost to avoid causing civilian casualties in the military showdown with Hamas.
"The massacre of the Dalu family will not pass without punishment," Hamas's armed wing said in a statement.
For their part, Gaza militants launched dozens of rockets into Israel and targeted its commercial capital, Tel Aviv, for a fourth day. The Jewish state's "Iron Dome" missile shield shot down two of the rockets fired toward Tel Aviv, Israel's biggest city, but falling debris from the interception hit a car, which caught fire. Its driver was not hurt.
In scenes recalling Israel's 2008-2009 winter incursion into Gaza, tanks, artillery and infantry massed in field encampments along the sandy, fenced-off border. Military convoys moved on roads in the area newly closed to civilian traffic.
Netanyahu said Israel was ready to widen its offensive.
"We are exacting a heavy price from Hamas and the terrorist organisations and the Israel Defence Forces are prepared for a significant expansion of the operation," he said at a cabinet meeting, giving no further details.
Gaza health official Mufid al-Miklalati said 65 Palestinians - around half of them women and children - have been killed in small, densely populated Gaza began, with hundreds wounded.
More than 500 rockets fired from Gaza have hit Israel since Wednesday, killing three civilians and wounding dozens.
Israel's declared goal is to deplete Gaza arsenals and force the Islamist Hamas to stop rocket fire that has bedevilled Israeli border towns for years and is now displaying greater range, putting Tel Aviv and Jerusalem in the crosshairs.
Israel withdrew settlers from Gaza in 2005 and two years later Hamas took control of the impoverished enclave, which the Israelis have kept under blockade.
OBAMA CAUTIONS AGAINST GROUND CAMPAIGN
At a news conference during a visit to Bangkok, Obama said Israel has "every right to expect that it does not have missiles fired into its territory".
He added: "If this can be accomplished without a ramping up of military activity in Gaza that is preferable. That's not just preferable for the people of Gaza, it's also preferable for Israelis because if Israeli troops are in Gaza they're much more at risk of incurring fatalities or being wounded," he said.
Obama said he had been in regular contact with Egyptian and Turkish leaders - to secure their mediation in bring about a halt to rocket barrages by Hamas and other Islamist militants.
"We're going to have to see what kind of progress we can make in the next 24, 36, 48 hours," he added.
In other air raids on Sunday, two Gaza City media buildings were hit, witnesses said. Eight journalists were wounded and facilities belonging to Hamas's Al-Aqsa TV as well as Britain's Sky News were damaged.
An employee of the Beirut-based al Quds television station lost his leg in the attack, local medics said.
The Israeli military said the strike targeted a rooftop "transmission antenna used by Hamas to carry out terror activity", and that journalists in the building had effectively been used as human shields by Gaza's rulers.
Egyptian President Mohamed Mursi said in Cairo, as his security deputies sought to broker a truce with Hamas leaders, that "there are some indications that there is a possibility of a ceasefire soon, but we do not yet have firm guarantees".
Egypt has mediated previous ceasefire deals between Israel and Hamas, the latest of which unravelled with recent violence.
A Palestinian official told Reuters the truce discussions would continue in Cairo on Sunday, saying "there is hope", but that it was too early to say whether the efforts would succeed.
U.N. Secretary-General Ban Ki-moon will be in Egypt on Monday for talks with Mursi, the foreign ministry in Cairo said. U.N. diplomats earlier said Ban was expected in Israel and Egypt this week to push for an end to the fighting.
The head of the Arab League and a group of Arab foreign ministers will visit Gaza on Tuesday to show solidarity with the Palestinians, officials said in Cairo.
Asked on Israel Radio about progress in the Cairo talks, Silvan Shalom, one of Netanyahu's deputies, said: "There are contacts, but they are currently far from being concluded."
Listing Israel's terms for ceasing fire, Moshe Yaalon, another deputy to the prime minister, wrote on Twitter: "If there is quiet in the south and no rockets and missiles are fired at Israel's citizens, nor terrorist attacks engineered from the Gaza Strip, we will not attack."
Israel's operation in the Gaza Strip has so far drawn Western support for what U.S. and European leaders have called its right to self-defence, but there was also a growing number of appeals from them to seek an end to the hostilities.
British Foreign Minister William Hague said on Sky News that he and Prime Minister David Cameron "stressed to our Israeli counterparts that a ground invasion of Gaza would lose Israel a lot of the international support and sympathy that they have in this situation".
Israel's cabinet decided on Friday to double the current reserve troop quota set for the Gaza campaign to 75,000. Some 31,000 soldiers have already been called up, the military said.
A possible sweep into the Gaza Strip and the risk of heavy casualties it brings would be a significant gamble for Netanyahu, favoured to win a January election.
The last Gaza war, a three-week Israeli blitz and invasion four years ago, killed 1,400 Palestinians, mostly civilians. Thirteen Israelis died in the conflict.
The current flare-up around Gaza has fanned the fires of a Middle East ignited by a series of Arab uprisings and a civil war in Syria that threatens to spread beyond its borders.
One significant change has been the election of an Islamist government in Cairo that is allied with Hamas, which may narrow Israel's manoeuvring room in confronting the Palestinian group. Israel and Egypt made peace in 1979.
Israel's Iron Dome missile interceptor system has destroyed more than 200 incoming rockets from Gaza in mid-air since Wednesday, saving Israeli towns and cities from potentially significant damage.
However, one rocket salvo unleashed on Sunday evaded Iron Dome and wounded two people when it struck a house in the Mediterranean coastal city of Ashkelon, police said.