The declaration came as Israeli forces moved to crush fighters still in southern towns and intensified their bombardment of the Gaza Strip with the number of dead reaching 1,100 and thousands wounded on both sides.

At least 700 people have reportedly been killed in Israel and more than 400 have died in Gaza as Israel retaliated with airstrikes in an operation which has been dubbed "Swords of Iron".

The Israelis say they are still engaged in as many as eight locations fighting Hamas outside of Gaza, more than 48hrs since the surprise attack.

Inside the Palestinian city, they have struck more than 1,000 targets.

At least 260 bodies recovered from music festival - follow live updates

The Israeli rescue service Zaka said its paramedics removed about 260 bodies from a music festival attended by thousands that came under attack.

The total figure is expected to be higher as other paramedic teams were working in the area.

Israel-Hamas War - watch special programme on Sky News tonight at 9pm.

Video on social media and Israeli news outlets showed dozens of festival-goers running through an open field as gunshots rang out. Many hid in nearby fruit orchards or were gunned down as they fled.

The declaration of war foreshadows heavier fighting ahead, and a major question is whether Israel will launch a ground assault into Gaza, a move that in the past has brought increased casualties.

Meanwhile, in northern Israel, a brief exchange of strikes with Lebanon's Hezbollah militant group fanned fears that the fighting could expand into a wider regional war.

Authorities are still trying to determine how many civilians and soldiers were seized by Hamas fighters and taken back to Gaza.

From videos and witnesses, the captives are known to include women, children and the elderly.

The leader of the Palestinian Islamic Jihad group, Ziad Nakhaleh, said his group, which took part in the attack, is holding more than 30 Israelis, among dozens he said were captive in Gaza.

He said they would not be released until all Palestinian prisoners in Israeli jails are freed.

Senior Hamas official Mousa Abu Marzouk told Arabic language news outlet al-Ghad on Sunday that they were holding more than 100 people captive.

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During their rampage through southern Israel, militants dragged back into Gaza dozens of captives, among them women, children and the elderly.

Their precise number had not been clear until the two militant groups made their announcements.

US Secretary of State Antony Blinken said as many as 1,000 Hamas fighters were involved in the assault, a high figure that underscored the extent of planning by the militant group ruling Gaza.

The gunmen rampaged for hours, gunning down civilians in towns, along roads and at a techno music festival being held in the desert near Gaza.

Israel has hit more than 800 targets in Gaza so far, its military said, including airstrikes that levelled much of the town of Beit Hanoun in the northeast corner.

Warplanes fired tonnes of explosives on 120 targets, Israeli Rear Admiral Daniel Hagari told reporters, saying Hamas was using the town as a staging ground for attacks.

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There was no immediate word on casualties, and most of the community's population of tens of thousands of people are likely to have fled before the bombardment.

"We will continue to attack in this way, with this force, continuously, on all gathering (places) and routes" used by Hamas, Rear Admiral Hagari said.

Meanwhile the United Nations Security Council opted for no immediate action after an emergency meeting over the growing conflict between Israel and Hamas.

The United States had called on all 15 members to strongly condemn "heinous terrorist attacks committed by Hamas" which has seen Israel declare war on the Palestinian organisation.