Israel is preparing for a ground incursion into the teeming city along the border with Egypt, where hundreds of thousands of displaced Palestinians have sought refuge from fighting further north.

The precarious humanitarian situation in Rafah has prompted aid groups and foreign governments, including Israel's key ally the United States, to express deep concern over the potentially disastrous consequences of expanding operations there.

The Israeli military announced early Monday morning that two captives had been rescued in a joint military, Shin Bet and police operation in Rafah after nearly 130 days in captivity.

In a statement, the army identified the two as Fernando Simon Marman and Louis Har. Both were in "good medical condition", it added.

"The military and the Shin Bet have been working on this operation for a long time... and they waited until the conditions were right to carry it out," army spokesman Daniel Hagari said in a briefing.

A firefight broke out as the captives were being taken out of the building they were held in, he added, with air strikes targeting nearby buildings where shots were fired.

Renewed talks for a pause in the fighting have been held in Cairo, with Hamas open to a fresh ceasefire including more prisoner-captive exchanges.

But a Hamas leader told AFP on condition of anonymity that an Israeli push into Rafah "would torpedo the exchange negotiations".

The group's military wing on Sunday said two captives had been killed and eight others seriously wounded in Israeli bombardment in recent days.

Overnight strikes

Despite mounting calls for him to strike a deal with Hamas to secure the remaining captives' release, Netanyahu has insisted that only military pressure can bring them home.

Last week, he said he had ordered troops to prepare for operations in Rafah, the last major city they have yet to enter.

"Around 100" people were killed in heavy air strikes in the overcrowded city before dawn on Monday, according to a statement from the Palestinian health ministry.

AFP journalists and witnesses heard an intense series of strikes and saw smoke billowing above the city, which now hosts more than half of Gaza's total population after they fled bombardment elsewhere in the Strip.

The strikes hit 14 houses and three mosques in different parts of Rafah, according to the Palestinian health ministry in Gaza.

US President Joe Biden spoke to Netanyahu by phone Sunday and told him the Rafah advance should not go ahead in the absence of a "credible" plan to ensure "the safety" of people sheltering there, the White House said.

About 1.4 million Palestinians have crowded into Rafah, with many living in tents, while food, water and medicine are becoming increasingly scarce.

Netanyahu had told US broadcaster ABC News the Rafah operation would go ahead until Hamas was eliminated, claiming he would provide "safe passage" to civilians wishing to leave.

When pressed about where they could go, Netanyahu said: "You know, the areas that we've cleared north of Rafah, plenty of areas there. But, we are working out a detailed plan."

'Demilitarisation'

During a visit to a military base Sunday, Netanyahu said Israel aims for "the demilitarisation of Gaza".

"This requires our security control... over the entire area west of Jordan, including the Gaza Strip," he said.

Qatar, Oman and the Organisation of Islamic Cooperation (OIC), meanwhile, were some of the latest to raise the alarm over the plan to advance on Rafah.

Saudi Arabia and the United Arab Emirates also rejected the "forced" displacement of people from Rafah, evoking the trauma of Palestinians' mass exodus and forced displacement around the time of Israel's creation in 1948.

Riyadh called for an urgent UN Security Council meeting, while Britain's Foreign Secretary David Cameron said the priority "must be an immediate pause in the fighting to get aid in and hostages out".

*This story was edited by Ahram Online.