Footage shows smoke from explosions in the Gaza Strip on Saturday afternoon as Israel responded with rockets to a surprise Hamas attack that has killed dozens of people and injured many more.

Militants in Gaza have fired more than 7,000 rockets and sent gunmen into Israeli territory in a major escalation of the long-running conflict between the two sides. At least 100 Israelis are believed to have been killed and 800 injured.

A source in Gaza Strip said today: 'The hostages are real. Soldiers have been captured. A very large number are being held prisoner.'

Thai and Filipino workers have also reportedly been captured by Palestinian forces in southern Israel and held hostage.

Israel's Prime Minister Benjamin Netanyahu said his country is 'at war' following the Palestinian assault. Israel launched retaliatory attacks killing and injuring Palestinians in Gaza.

Hamas deputy chief Saleh al-Arouri, told local media that 'we managed to kill and capture many Israeli soldiers' and 'the fighting is still on'.

'We expect fighting to continue and the fighting front to expand. We have one prime target: our freedom and the freedom of our holy sites,' he said.