Israeli warplanes have pounded targets across Gaza, where two Palestinians were killed and militants fired dozens of rockets into Israel after renewed hostilities ruptured a fledgling three-day truce.

The month-long conflict flared once again after mediators tried but failed to extend a ceasefire that expired at 0500 GMT (3PM AEST) after Palestinian militants breached the quiet with pre-dawn rocket attacks.

Egypt, which is mediating between Israelis and Palestinians, insisted negotiations were making progress but Israel recalled its delegation and warned it would not negotiate under fire.

Prime Minister Benjamin Netanyahu ordered the military to retaliate “forcefully” and blamed the Islamist movement Hamas for breaching the ceasefire.

The army said 35 air strikes had been carried out across Gaza on Friday.

Palestinian militants fired 35 rockets into Israel, injuring one civilian and a soldier, the army said.

The violence ended the 72-hour lull in fighting between Israel and Hamas that has killed at least 1895 Palestinians and 67 people on the Israeli side, almost all soldiers, since July 8.

Friday’s fatalities were a 10-year-old boy and a 22-year-old man, with at least 20 other Palestinians wounded in Israeli air strikes, said Ashraf al-Qudra, Gaza’s emergency services spokesman.

Some Palestinian families who had returned home trickled back to shelter in UN-run schools after militants fired rockets at Israel and Israel retaliated from the skies.

The United Nations says at least 1354 of the Palestinians killed in the fighting since July 8 were civilians, including 447 children.

In southern Israel, the army banned gatherings larger than 500 people within 40 kilometres of Gaza and said kindergarten and summer camps could only operate if there was a bomb shelter nearby.

Egypt has called for an immediate return of the ceasefire and said progress had been made in the negotiations.

The head of a Palestinian delegation in Cairo said they were committed to achieving a truce.

“We told the Egyptians (mediators) we are sitting here to achieve a final agreement that restores the rights” of Palestinians, Azzam al-Ahmed told reporters.

Hamas and the Islamic Jihad group had rejected another 72-hour truce, accusing Israel of stalling.

“There had been an agreement on the vast majority of matters that are important to the Palestinian people, but some limited points remained undecided, a matter that should have led to an acceptance to renew the ceasefire,” the Egyptian foreign ministry said.