An Israeli air strike in Gaza killed the wife and infant son of Hamas's military leader, Mohammed Deif, the group said, calling it an attempt to assassinate him after a ceasefire collapsed.
Palestinians launched more than 100 rockets, mainly at southern Israel, with some intercepted by the Iron Dome anti-missile system, the military said. No casualties were reported on the Israeli side.
Egypt, which has been trying to broker a long-term ceasefire in indirect Israeli-Palestinian talks, said it would continue contacts with both sides, whose delegates left Cairo after hostilities resumed on Tuesday.
But there appeared to be no end in sight to violence that shattered a 10-day period of calm, the longest break from fighting since Israel launched its Gaza offensive on July 8 with the declared aim of ending rocket fire into its territory.
Israeli aircraft have carried out 80 strikes in the Gaza Strip since Tuesday, "targeting terror sites," the military said.
Hamas and medical officials said 19 people died in the latest Israeli raids, including Deif's wife and seven-month-old son. Deif is widely believed to be masterminding the Islamist group's military campaign from underground bunkers.
A Hamas official said Deif had not used the targeted house, where the bodies of three members of the family that lived there were also pulled out of the rubble.
Accusing Israel of opening a "gateway to hell," Hamas fired rockets at Tel Aviv and Jerusalem late on Tuesday, demonstrating the Islamist movement could still reach Israel's heartland despite heavy Israeli bombardments in the five-week-old conflict.
There was no official confirmation from Israel that it had tried to kill Deif, who has been targeted in air strikes at least four times since the mid-1990s. Israel holds him responsible for the deaths of dozens of its citizens in suicide bombings.
"I am convinced that if there was intelligence that Mohammed Deif was not inside the home, then we would not have bombed it," Yaakov Perry, Israel's science minister and former security chief, told Army Radio.
Israeli police minister Yitzhak Aharonovitch, a member of Benjamin Netanyahu's security cabinet, due to convene later on Wednesday, told reporters: "We will continue to hit the heads of Hamas."
Five children were killed in separate air strikes, according to Gaza health officials, and the Israeli military said it targeted two gunmen in northern Gaza.
The Palestinian Health Ministry says 2,036 people, most of them civilians, have been killed in Gaza. Israel says it has killed hundreds of Palestinian militants in fighting that the United Nations says has displaced about 425,000 people.
Sixty-four Israeli soldiers and three civilians in Israel have also been killed in the most deadly and destructive war Hamas and Israel have fought since Israel withdrew unilaterally from Gaza in 2005, before Hamas seized the territory in 2007.
Accusing Hamas of breaking the truce with rocket fire eight hours before it was to have expired, Israel recalled its negotiators from truce talks in Cairo on Tuesday, leaving the fate of the Egyptian-brokered efforts hanging in the balance.
Palestinian negotiators walked out of the talks later, blaming Israel for their failure. "Israel thwarted the contacts that could have brought peace," chief Palestinian negotiator Azzam al-Ahmed said.
Rejecting the charge, Mark Regev, a spokesman for Prime Minister Benjamin Netanyahu, said Gaza rocket fire "made continuation of talks impossible".
"The Cairo process was built on a total and complete cessation of all hostilities and so when rockets were fired from Gaza, not only was it a clear violation of the ceasefire but it also destroyed the premise upon which the talks were based," Regev told Reuters.
Western-backed Palestinian President Mahmoud Abbas, whose Fatah party took part in the Cairo talks, was due to meet the emir of Qatar, Sheikh Tamim bin Hamad al-Thani, and exiled Hamas leader Khaled Meshaal in Doha on Wednesday, diplomatic sources said.
Israel instructed its civilians to open bomb shelters as far as 80 km (50 miles) from Gaza, or beyond the Tel Aviv area, and the military called up 2,000 reservists.
United Nations Secretary General Ban Ki-moon condemned the breach of the ceasefire, saying in a statement he was "gravely disappointed by the return to hostilities" and urging the sides not to allow matters to escalate.
Egyptian mediators have been struggling to end the Gaza conflict and seal a deal that would open the way for reconstruction aid to flow into the territory of 1.8 million people, where thousands of homes have been destroyed.
The Palestinians want Egypt and Israel to lift their blockades of the economically crippled Gaza Strip that predated the Israeli offensive.
Israel, like Egypt, views Hamas as a security threat and wants guarantees that any removal of border restrictions will not result in militant groups obtaining weapons.
A senior Palestinian official in Gaza said sticking points to an agreement have been Hamas's demands to build a seaport and an airport, which Israel wants to discuss only at a later stage.
Israel has called for the disarming of militant groups in the enclave. Hamas has said that laying down its weapons is not an option, saying it will pursue its armed struggle until Israel's occupation of Palestinian lands ends.
Israel captured the West Bank, Gaza and East Jerusalem in 1967. The Palestinians want Gaza and the West Bank for an independent state with its capital in East Jerusalem.
(Additional reporting by Maggie Fick and Stephen Kalin in Cairo; Writing by Maayan Lubell; Editing by Jeffrey Heller and Andrew Heavens)