Israel bombed dozens of targets in Gaza on Monday and said that while it was prepared to step up its offensive by sending in troops, it preferred a diplomatic solution that would end Palestinian rocket fire from the enclave.
As international pressure mounted for a truce, mediator Egypt said a deal to end the fighting could be close.
Twelve Palestinian civilians and four fighters were killed in the air strikes, bringing the Gaza death toll since fighting began on Wednesday to 90, more than half of them non-combatants, local officials said. Three Israeli civilians have been killed.
After an overnight lull, resistance fighters in the Hamas-run Gaza Strip fired 45 rockets at southern Israel, causing no casualties, police said. One damaged a school, but it was closed at the time.
The deaths of 11 Palestinian civilians - nine from one family - in an air strike on Sunday - drew more international calls for an end to six days of hostilities and could test Western support for an offensive Israel billed as self-defence after years of cross-border rocket attacks.
Israel's military did not immediately comment on a report in the liberal Haaretz newspaper that it had mistakenly fired on the Dalu family home, where the dead spanned four generations, while trying to kill a Hamas rocketry chief.
Echoes of explosions in Gaza mixed with cries of grief and defiant chants of "God is greatest" at the funeral of the four children and five women killed in the attack that flattened the three-storey house. Their bodies were wrapped in Palestinian and Hamas flags and thousands turned out to mourn them.
United Nations Secretary-General Ban Ki-moon was due to arrive in Cairo to weigh in on ceasefire efforts led by Egypt, which borders both Israel and Gaza and whose Muslim Brotherhood-rooted government has been hosting leaders of Hamas and Islamic Jihad, a smaller armed faction in the Palestinian enclave.
Israeli media said a delegation from Israel had also been to Cairo for the truce talks. A spokesman for Prime Minister Benjamin Netanyahu's government declined comment on the matter.
"Israel is prepared and has taken steps, and is ready for a ground incursion which will deal severely with the Hamas military machine," a senior official close to Netanyahu told Reuters.
But he added: "We would prefer to see a diplomatic solution that would guarantee the peace for Israel's population in the south. If that is possible, then a ground operation would no longer be required. If diplomacy fails, we may well have no alternative but to send in ground forces."
The official's language echoed that of U.S. President Barack Obama, who said on Sunday it would be "preferable" to avoid a move into Gaza. Obama also said Israel had a right to self-defence and no country would tolerate missiles raining down on its citizens.
Egyptian negotiators could be close to achieving a deal between Israel and the Palestinians to stop the fighting could be close, the Egyptian prime minister said.
"I think we are close, but the nature of this kind of negotiation, (means) it is very difficult to predict," Hisham Kandil said in an interview in Cairo for the Reuters Middle East Investment Summit.
Egypt's foreign minister is expected to visit Gaza on Tuesday with a delegation of Arab ministers to express solidarity with the Palestinians.
In scenes recalling Israel's 2008-2009 winter invasion of Gaza, tanks, artillery and infantry have massed in field encampments along the sandy, fenced-off Gaza border and military convoys moved on roads in the area.
Israel has also authorised the call-up of 75,000 military reservists, so far mobilising around half that number.
The Gaza fighting has stoked the worries of world powers watching an already combustible region.
In the absence of any prospect of permanent peace between Israel and Hamas and other Islamist factions, mediated deals for each to hold fire unilaterally have been the only formula for stemming bloodshed in the past. But both sides now placed the onus on the other.
Izzat Risheq, aide to Hamas politburo chief Khaled Meshaal, wrote on Facebook that Hamas would enter a truce only after Israel "stops its aggression, ends its policy of targeted assassinations and lifts the blockade of Gaza".
Listing Israel's terms, Vice Prime Minister Moshe Yaalon 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."
Yaalon also said Israel wanted an end to Gaza guerrilla activity in the neighbouring Egyptian Sinai, a desert peninsula where lawlessness has spread during Cairo's political crises.
Israel bombed some 80 sites in Gaza overnight, the military said, adding in a statement that targets included "underground rocket launching sites, terror tunnels and training bases" as well as "buildings owned by senior terrorist operatives".
Netanyahu has said he had assured world leaders that Israel was doing its utmost to avoid causing civilian casualties in Gaza. At least 22 of the Gaza fatalities have been children, medical officials said.
Before leaving for Cairo, Ban urged Israel and the Palestinians to cooperate with all Egyptian-led efforts to reach an immediate ceasefire.
But a big rocket strike might be enough for Netanyahu to give a green light for a Gaza invasion, despite the political risks of heavy casualties before a January election he is favoured to win.
Although 84 percent of Israelis supported the current Gaza assault, according to a Haaretz poll, only 30 percent wanted an invasion. Nineteen percent wanted their government to work on securing a truce soon.
Israel's declared goal is to deplete Gaza arsenals and force Hamas to stop rocket fire that has bedevilled Israeli border towns for years.
The rockets now have greater range, becoming a strategic weapon for Gaza's otherwise massively outgunned militants. Several projectiles have targeted Tel Aviv and Jerusalem. None hit the two cities and some of the rockets were shot down by Israel's Iron Dome interceptor system.
As a precaution against the rocket interceptions endangering nearby Ben-Gurion International Airport, civil aviation authorities said on Monday new flight paths were being used.
There was no indication takeoffs and landings at Ben-Gurion had been affected.
Hamas and other groups in Gaza are sworn enemies of the Jewish state which they refuse to recognise and seek to eradicate, claiming all Israeli territory as rightfully theirs.
Hamas won legislative elections in the Palestinian Territories in 2006 but a year later, after the collapse of a unity government under President Mahmoud Abbas the Islamist group seized control of Gaza in a brief and bloody civil war with forces loyal to Abbas.