Tel Aviv/Gaza/Cairo  - Israel continued its offensive in the Gaza Strip Saturday, killing at least 16 Palestinians, including seven from one family, witnesses and medics said, while the military threatened to expand its operations.

Residents in the enclave said they received leaflets, dropped from the air, warning them the military would scale up the campaign.

The military "will continue to target tunnels, weapon storage facilities and terror operatives with growing intensity throughout the Gaza Strip," read the leaflet, signed by the military, warning civilians to take precautions.

Meanwhile, Palestinian President Mahmoud Abbas met in Cairo Saturday with Egypt's President Hosny Mubarak as part of diplomatic efforts to achieve a ceasefire, while a delegation from Hamas was expected to continue discussions with Egyptian officials later in the day.

Turkish officials are set to join the talks, and German Foreign Minister Frank-Walter Steinmeier was also in Cairo.

Israel was expected to send Amos Gilad, a senior defence figure, to Egypt as well in the upcoming days for the second time in a week.

Abbas expressed his support for an Egyptian-French ceasefire proposal and added, "We need an international presence to protect the people in the Gaza Strip and not just international observers on the border with Egypt."

While Abbas called on Hamas to accept the proposal, leaders of the militant group have rejected the idea of foreign troops in Gaza.

Overnight, Israeli's air force struck over 40 targets, and after sunrise continued with artillery fire and naval attacks. Airstrikes resumed in the afternoon.

Israeli soldiers on the ground killed 15 armed men overnight, the military said, but Palestinian emergency workers in Gaza could not confirm the report.

One militant was killed during a three-hour lull in fighting, which began at 1 pm (1100 GMT), when Israel allowed residents to go out and stock up on food, and medics and patients could move more freely.

Right before the lull, Palestinians fired three rockets at the Israeli city of Ashkelon, and Israel conducted attacks, with one shell landing on the Abed Rabbo family's home in Jablia, killing seven relatives and one other person.

The military said an initial investigation indicated it was not responsible for the shelling.

According to Palestinian medical officials in the Gaza Strip, at least 820 people have been killed, with over 3,300 injured. At least 40 per cent of the dead were women and children, UN statistics showed.

Saturday was the 15th day of fighting and residents in Gaza continued to report shortages of fresh food and water. People said they eat mostly limited supplies of canned goods.

Five Israeli soldiers were lightly injured in overnight fighting. Troops remain in the Gaza Strip, but for the most part have not entered the most crowded urban areas.

Nine Israeli soldiers and three civilians were killed since Israel launched Operation Cast Lead on December 27, in what was said to be a campaign to curtail Palestinian rocket fire. At least eight Palestinian rockets were fired Saturday.

The Israeli offensive continued after the government's security cabinet decided on Friday to carry on, despite a United Nations Security Council resolution which called for an immediate ceasefire.

UN Secretary General Ban Ki-moon criticized Israel for not accepting the council's resolution and going towards a ceasefire, but officials in Jerusalem responded that as the UN could not stop Palestinian rocket fire, the offensive would go on.

"Israel has a right to protect its citizens," a statement from the cabinet said on Friday, announcing a continuation of the Israeli military action.

Caretaker Prime Minister Ehud Olmert said Israel "has never agreed that any outside body would determine its right to defend the security of its citizens."

Hamas and the Islamic Jihad both rejected the ceasefire call, saying the UN resolution did not meet the needs of the Palestinians in Gaza.

Abbas said the Egyptian-Franco proposal is the main mechanism by which Thursday's UN Security Council resolution for a ceasefire in the Gaza Strip could be put into action.

Israel still maintains an option, analysts said, to go to "phase three," which would mean sending more ground troops deeper into populated areas, in the event that it wanted to take even further action.

In the leaflets distributed Saturday the military said that civilians casualties had been avoided in the Rafah area several days earlier since residents had listened to instructions and advised other Gazans to do likewise.

Estimates said up to 50,000 people fled Rafah following the dispersal of leaflets at that time, with many seeking shelter at UN schools.

Others, who found nowhere to hide, slept on the street, in areas farther away from the border.

The UN reported that the number of forcibly displaced Palestinians during the current operation was the highest since the 1967 war. (dpa)