Israel has vowed a “severe response” as it launched deadly strikes on Gaza in swift retaliation to a Hamas air, land and sea attack that took the Jewish nation by surprise.

Israel suffered one of its bloodiest attacks in decades as Hamas fighters rampaged through Israeli towns, killing civilians and abducting dozens more, with Israel’s death toll passing 700.

Israelis were reeling from the sight of bloodied bodies lying on suburban streets, in cars and in their homes after the unprecedented incursion.

Among the horrors was a “massacre” at a music festival in farmland near the Israel-Gaza border where attackers went on a bloody rampage, gunning down festivalgoers and taking others hostage.

The latest reports say 260 bodies have been recovered from the festival site.

Video and stories have emerged of attendees fleeing for their lives across the Negev Desert as Hamas gunmen shot at individuals as they tried to escape on foot or in cars.

Some festivalgoers were taken hostage and one of the young female captives has since been paraded on the streets of Gaza, according to video verified by CNN.

Shani Louk, a German-Israeli national who was at the dance party when it was swarmed, can be seen in the video as onlookers on the street shout “Allahu Akbar.”

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Another unverified video shows a terrified woman identified as Noa Argamani on the back of a motorbike as she is captured at the festival.

The dramatic seizure of hostages has complicated Israel’s “war” on Gaza as an unknown number of its nationals are held in hidden locations across the Palestinian enclave.

Militants claim they are holding dozens of Israeli captives, including soldiers. Palestinian Islamic Jihad says its group alone has more than 30 hostages.

Israeli air strikes have so far hit housing blocks, tunnels, a mosque and homes of Hamas officials in Gaza, killing more than 370 people, including 20 children, as Prime Minister Benjamin Netanyahu vowed “mighty vengeance for this black day”.

In a sign the conflict could spread beyond blockaded Gaza, Israel and Lebanon’s Iran-backed Hezbollah militia exchanged artillery and rocket fire, while in Alexandria, two Israeli tourists were shot dead along with their Egyptian guide.

The attack by Hamas is the biggest and deadliest incursion into Israel in 50 years.

In southern Israel, Hamas gunmen were still fighting Israeli security forces 24 hours after a surprise, multi-pronged assault of rocket barrages and bands of gunmen who overran army bases and invaded border towns.

“My two little girls, they’re only babies. They’re not even five years old and three years old,” said Yoni Asher who had seen video of gunmen seizing his wife and two small daughters after she took them to visit her mother, he said.

Israel’s military, which faces questions over its failure to prevent the attack, said it had regained control of most infiltration points along security barriers, killed hundreds of attackers and taken dozens more prisoner.

“We’re going to be attacking Hamas severely and this is going to be a long, long haul,” an Israeli military representative told a briefing with reporters.

The military said it had deployed tens of thousands of soldiers around Gaza, a narrow strip that is home to 2.3 million Palestinians, and was starting to relocate all Israelis living around the frontier of the territory.

“This is my fifth war. The war should stop. I don’t want to keep feeling this,” said Qassab al-Attar, a Palestinian wheelchair user in Gaza whose brothers carried him to shelter when Israeli forces shelled their house.

The attack by Hamas launched at dawn on Saturday (local time) represented the biggest and deadliest incursion into Israel since Egypt and Syria launched a sudden assault in an effort to reclaim lost territory in the Yom Kippur war 50 years ago.

Hamas fired more rocket salvos into Israel on Sunday (local time), with air raid sirens sounding across the south, and the Israeli military said it would combine an evacuation of border areas with a search for more gunmen.

Israeli air strikes on Gaza began soon after the Hamas attack and continued overnight and into Sunday, destroying the group’s offices and training camps but also houses and other buildings.

Gaza’s health ministry said 370 people had been killed and 2200 wounded in the Israeli strikes.

The Israeli army says it has deployed tens of thousands of soldiers around Gaza.

More than 20,000 Palestinians in Gaza have sought refuge in schools run by the United Nations, the UN’s Palestinian refugee agency said.

In Khan Younis, in southern Gaza, people searched through the remains of a mosque early on Sunday.

“We ended the night prayers and suddenly the mosque was bombed. They terrorised the children, the elderly and women,” resident Ramez Hneideq said.

The escalation comes against a backdrop of surging violence between Israel and Palestinian militants in the Israeli-occupied West Bank, where a Palestinian authority exercises limited self-rule, opposed by Hamas that wants Israel destroyed.

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Conditions in the West Bank have worsened under Netanyahu’s religious-nationalist government with more Israeli raids and assaults by Jewish settlers on Palestinian villages, and the Palestinian Authority called for an emergency Arab League meeting.

Hamas leader Ismail Haniyeh said the assault that began in Gaza would spread to the West Bank and Jerusalem.

Gazans have lived under an Israeli-led blockade for 16 years, since Hamas seized control of the territory in 2007.

“How many times have we warned you that the Palestinian people have been living in refugee camps for 75 years, and you refuse to recognise the rights of our people?,” Haniyeh said.