At least 10 people died in a fresh strike on a UN school in Gaza on Sunday shortly after Israel confirmed it had begun withdrawing some troops from the war-torn enclave.

The strike on the school sheltering displaced Palestinians in the southern city of Rafah came as Israel pounded the region following the suspected capture of a soldier by Hamas fighters, who was later declared dead.

It was the third time in 10 days that a UN school had been hit and came four days after Israeli tank shells slammed into a school in the northern town of Jabaliya, killing 16 in an attack furiously denounced by UN chief Ban Ki-moon as "reprehensible".

An AFP correspondent said there were scenes of chaos at the site, with rescuers trying to evacuate the wounded any way they could, while adults were seen sprinting frantically away through pools of blood, young children clutched in their arms.

Chris Gunness, spokesman for the UN agency for Palestinian refugees (UNRWA), said the school had been housing thousands of internally displaced people (IDPs) who had been forced to flee their homes by the ongoing violence in Gaza.

'Multiple deaths and injury'

"Shelling incident in vicinity of UNRWA school in Rafah sheltering almost 3,000 IDP. Initial reports say multiple deaths and injury," he wrote on his Twitter feed.

Images of the carnage in Gaza, where medics say 1,766 Palestinians have been killed and another 9,320 wounded in the past 27 days, have shocked the public worldwide with British Foreign Secretary Philip Hammond demanding an unconditional ceasefire to resolve the "intolerable" situation for civilians trapped in Gaza".

"We have to get the killing to stop," Hammond told the Sunday Telegraph, saying many people were "deeply disturbed" by the civilian loss of life.

Intensive international attempts to broker a diplomatic end to the fighting between Israel and Hamas have so far proved fruitless but the efforts are continuing.

A Palestinian delegation was to hold truce talks Sunday in Cairo with senior US and Egyptian officials, although Israel has said it sees no point in sending its negotiators to the meeting, citing what it says are Hamas breaches of previous agreed truces. Islamic Jihad was also expected to join along with US Middle East envoy Frank Lowenstein.

Several Israeli newspapers reported that cabinet ministers have taken a decision not to seek a further negotiated ceasefire agreement with Hamas and were considering ending the military operation unilaterally.

Israel's army confirmed on Sunday it had begun withdrawing some troops from Gaza.

"We are removing some (forces)," Lieutenant Colonel Peter Lerner told AFP, saying troops were "extremely close" to completing a mission to destroy a network of attack tunnels.

"We are redeploying within the Gaza Strip, taking out other positions, and relieving other forces from within, so it won't be the same type of ground operation," he said.

"But indeed we will continue to operate... (and) have a rapid reaction force on the ground that can engage Hamas if required. "It's changing gear but it's still ongoing."

Soldier declared dead

Israel's assault on Rafah began early on Friday in the opening hours of a 72-hour humanitarian truce, which was quickly shattered when Hamas fighters ambushed a group of soldiers, killing two of them. A third was reported missing, believed snatched in a development which drew sharp condemnation from top US and UN officials.

But early on Sunday, the Israeli army formally announced the death the soldier, 23-year-old Hadar Goldin, saying he had been "killed in battle in the Gaza Strip on Friday". Army radio said no body had been recovered, rendering the decision to announce his death "very delicate."

There was no word on the whereabouts of his remains.

Hamas' Ezzedine al-Qassam Brigades acknowledged its fighters had staged an ambush in which two other Israeli soldiers were killed, but denied holding Goldin. His death raised to 64 the total number of soldiers killed since the start of the operation on July 8, its heaviest toll since the Lebanon war of 2006.

Nonetheless, Israeli Prime Minister Benjamin Netanyahu vowed to press on with the offensive, promising that Hamas would pay "an insufferable price" for continued cross-border rocket fire.

Leaving Beit Lahiya

"We will take as much time as necessary, and will exert as much force as needed," he said late on Saturday.

Netanyahu's remarks came after the army gave a first indication it was ending operations in parts of Gaza, informing residents of Beit Lahiya and Al-Atatra in the north that it was "safe" to return home.

Witnesses in the north confirmed seeing troops leaving the area as others were seen pulling out of villages east of Khan Yunis in the south, with commentators suggesting it was the start of a unilateral withdrawal.