Prime minister Benjamin Netanyahu has told Israel that it is “at war” with Hamas militants that rule the Gaza Strip, after they launched a major, multi-front attack on the country.

Mr Netanyahu’s comments in a televised address were his first since the Gaza Strip’s Hamas rulers launched the attack at daybreak on Saturday.

He ordered a call-up of reservists and promised that Hamas would “pay an unprecedented price”, adding that Israel would “return fire of a magnitude that the enemy has not known”.

“We are at war,” Mr Netanyahu said. “Not an ‘operation’, not a ’round’, but at war.”

The prime minister also ordered the military to clear the infiltrated towns of Hamas militants that remained locked in gunfights with Israeli soldiers.

The Israeli military also confirmed that Gaza’s militant Hamas rulers are holding Israeli civilians and soldiers captive in the Palestinian enclave, marking a major escalation in the fighting.

The military said Hamas claims that its fighters had kidnapped a number of Israelis after they infiltrated Israel’s highly fortified separation fence and stormed into Israeli communities in the country’s south.

Social media has been filled with videos claiming to show Hamas fighters dragging lifeless Israeli soldiers and parading captured civilians through the streets.

At least 40 people in Israel have been killed and hundreds wounded, making the unprecedented surprise early morning attack by Hamas the deadliest in Israel in years.

Hamas fired thousands of rockets at Israel on Saturday and sent dozens of fighters across the country’s heavily fortified border, a massive show of force that caught Israel off-guard on a major holiday.

Israeli Prime Minister Benjamin Netanyahu
Israeli prime minister Benjamin Netanyahu ordered a call-up of reservists (Abir Sultan/Pool Photo via AP)

Israel’s national rescue service said at least 40 people have been killed and hundreds wounded during the military incursion.

The numbers make the operation the deadliest in Israeli territory in years.

At least 561 wounded people were being treated in Israeli hospitals, including at least 77 who were in a critical condition, according to an Associated Press count based on public statements and calls to hospitals.

Meanwhile, at least 198 people have been killed and 1,610 wounded in Gaza in the Israeli retaliation to the Hamas attack, according to the Palestinian Health Ministry.

The toll came as Israel carried out a number of air strikes in Gaza and clashed with gunmen at the border fence around the coastal territory.

At a meeting of top security officials later on Saturday, Mr Netanyahu said the first priority was to “cleanse the area” of enemy infiltrators, then to “exact a huge price from the enemy”, and to fortify other areas so that no other militant groups join the war.

Videos released by Hamas appeared to show at least three Israelis captured alive.

The serious invasion on Simchat Torah revived memories of the 1973 war practically 50 years to the day, in which Israel’s enemies launched a surprise attack on Yom Kippur.

Comparisons to one of the most traumatic moments in Israeli history sharpened criticism of Mr Netanyahu and his far-right allies, who had campaigned on more aggressive action against threats from Gaza.

Political commentators lambasted the government over its failure to anticipate what appeared to be a Hamas attack unseen in its level of planning and co-ordination.

The Israeli military struck targets in Gaza in response to more than 2,000 rockets that sent air raid sirens wailing constantly as far north as Tel Aviv and Jerusalem.

It said its forces were engaged in gunfights with Hamas militants who had infiltrated Israel in at least seven locations.

Israeli soldiers
The Israeli military confirmed an infiltration had occurred in several locations near the Gaza border (Ohad Zwigenberg/AP)

The fighters had sneaked across the separation fence and even invaded Israel through the air with paragliders, the army said.

It was not immediately clear what prompted Hamas to launch its attack, which came after weeks of simmering tensions along the Gaza frontier. The shadowy leader of Hamas’ military wing, Mohammed Deif, announced the start of what he called “Operation Al-Aqsa Storm”.

“Enough is enough,” he said in the recorded message, as he called on Palestinians from east Jerusalem to northern Israel to join the fight. “Today the people are regaining their revolution.”

In a televised address, Israeli defence minister Yoav Gallant warned that Hamas had made “a grave mistake” and promised that “the state of Israel will win this war.”

Israeli firefighters extinguish a blaze
Israeli firefighters extinguish a blaze after a rocket fired from the Gaza Strip hit a car park in Ashkelon, southern Israel (Tsafrir Abayov/AP)

The attack comes at a time of historic division within Israel over Mr Netanyahu’s proposal to overhaul the judiciary.

Mass protests over the plan have sent hundreds of thousands of Israeli demonstrators into the streets and prompted hundreds of military reservists to avoid volunteer duty — turmoil that has raised fears over the military’s battlefield readiness.

“We are in a state of war,” said Kobi Shabtai, the Israeli police chief. “There is no other explanation.”

The infiltration of fighters into southern Israel marked a major accomplishment — and escalation — by Hamas.

Millions of people were hunkering down in safe rooms, sheltering from rocket explosions and ongoing gun-battles with Hamas fighters.

Smoke rises after a rocket fired from the Gaza Strip hit a house in Ashkelon, southern Israel
Smoke rises after a rocket fired from the Gaza Strip hit a house in Ashkelon, southern Israel (Tsafrir Abayov/AP)

Cities and towns emptied as the military closed roads near Gaza.

The army ordered residents near the Palestinian enclave to stay inside while Israel’s rescue service appealed to the public to donate blood.

“We understand that this is something big,” said Lt Col Richard Hecht, an Israeli army spokesperson. He said the Israeli military had called up the army reserves.

He declined to comment on how Hamas had managed to catch the army off guard. “That’s a good question,” he said.

Salah Arouri, an exiled Hamas leader, said the operation was a response “to the crimes of the occupation”.

He said fighters were defending the Al-Aqsa Mosque in Jerusalem and the thousands of Palestinian prisoners held by Israel.

Israeli soldiers head south near Ashkelon
Israeli soldiers head south near Ashkelon (Ohad Zwigenberg/AP)

In the kibbutz of Nahal Oz, just two miles from the Gaza Strip, terrified residents who were huddled indoors said they could hear constant gunfire echoing off the buildings as firefights continued even hours after the initial attack.

“With rockets we somehow feel safer, knowing that we have the Iron Dome (missile defence system) and our safe rooms. But knowing that terrorists are walking around communities is a different kind of fear,” said Mirjam Reijnen, a 42-year-old volunteer firefighter and mother of three in Nahal Oz.

Israel has built a massive fence along the Gaza border meant to prevent infiltrations. It goes deep underground and is equipped with cameras, high-tech sensors and sensitive listening technology.

The escalation comes after weeks of heightened tensions along Israel’s volatile border with Gaza, and heavy fighting in the Israeli-occupied West Bank.

It also comes at a delicate time for Mr Netanyahu’s far-right government.

The divisions within army ranks have threatened to undermine Mr Netanyahu’s reputation as a security expert who would do anything to protect Israel and the cohesion of an institution crucial to the stability of a country locked in low-intensity conflicts on multiple fronts and facing threats from Lebanon’s Hezbollah militant group.

Israel Palestinians
The rocket fire comes during a period of heavy fighting in the West Bank (Tsafrir Abayov/AP)

Hezbollah congratulated Hamas, praising the attack as a response to “Israeli crimes” and saying the militants had “divine backing”. The group said its command in Lebanon was in contact with Hamas about the operation.

Israel has maintained a blockade over Gaza since Hamas seized control of the territory in 2007. The bitter enemies have fought four wars since then.

There have also been numerous rounds of smaller fighting between Israel and Hamas and other smaller militant groups based in Gaza.

The blockade, which restricts the movement of people and goods in and out of Gaza, has devastated the territory’s economy.

Israel says the blockade is needed to keep militant groups from building up their arsenals. The Palestinians say the closure amounts to collective punishment.

The rocket fire comes during a period of heavy fighting in the West Bank, where nearly 200 Palestinians have been killed in Israeli military raids this year.

Rockets are fired towards Israel from Gaza
Thousands of rockets were fired (Fatima Shbair/AP)

In the volatile northern West Bank, scores of militants and residents poured into the streets in celebration at the news of the rocket barrages.

Israel says the raids are aimed at militants, but stone-throwing protesters and people not involved in the violence have also been killed. Palestinian attacks on Israeli targets have killed more than 30 people.

The tensions have also spread to Gaza, where Hamas-linked activists held violent demonstrations along the Israeli border in recent weeks.

Those demonstrations were halted in late September after international mediation.