An Israeli air strike on a house in Gaza City killed a child and a woman late Tuesday, wounding 16 other people, local emergency services spokesman Ashraf al-Qudra said.
All the casualties are understood to be from the same family.
“A woman and a child were martyred and another 16 are wounded,” Qudra said.
Emergency workers feared that there were still people trapped under the rubble of the house, witnesses and an AFP reporter said.
Israel and Palestinian fighters resumed fire across the Gaza border on Tuesday.
The fighting shattered nine days of relative quiet in the skies over Gaza and cast a dark shadow over Egyptian-mediated efforts to hammer out a longer-term truce.
“There has been no progress,” Azzam al-Ahmed, the chief Palestinian negotiator in Cairo said on Tuesday. “Matters have become more complicated.”
A statement from Hamas spokesman Fawzi Barhum accused Israeli Prime Minister Benjamin Netanyahu of deliberately obstructing truce efforts and said that the movement would now “examine all options in the light of developments in the situation… and facts on the ground.”
But Israel’s US ally put the blame squarely on the group itself.
“Hamas has security responsibility for Gaza… Rocket fire came from Gaza,” State Department spokeswoman Marie Harf said.
“As of right now, with today’s developments, we are very concerned and it is our understanding the ceasefire has broken down.”
An AFP reporter saw hundreds of Palestinians streaming out of Shejaiya, an eastern area of Gaza City which has been devastated by more than a month of Israel onslaught.
More poured out of the Zeitun and Shaaf areas, alarmed by a series of explosions and heading to shelter in UN schools, local witnesses said.
Amnesty International renewed an appeal for access to Gaza.
“Valuable time has already been lost and it is essential that human rights organisations are now able to begin the vital job of examining allegations of war crimes,” it said.
The Palestinians say agreement over a long-term arrangement in Gaza has been delayed by Israeli foot-dragging over key issues such as a port and an airport.
“The negotiations failed on Monday evening because the Israelis refused to include a port or an airport in the agreement,” a Palestinian source close to the talks told AFP, speaking on condition of anonymity.
“The Egyptians then added a clause allowing for the postponement of talks on this issue in order to avoid Israel raising the issue of (disarming Gaza from) rockets and missiles,” he said.
Israel has repeatedly demanded that Gaza be demilitarised although the subject is not overly mentioned in the Egyptian proposal as seen by AFP.
Islamic Jihad on Tuesday accused Israel of “intransigence” while Hamas spokesman Sami Abu Zuhri said Tel Aviv was “playing for time” at the talks.
“The negotiations have faced difficulties because of the occupation’s obstinacy, and the 24 hour (extension) came as a result of a request by the mediators to have another chance,” politburo member Izzat al-Rishq wrote on Twitter late on Monday.
Hamas had repeatedly warned it would not extend the temporary ceasefire again, after the devastating four-week Israeli onslaught, which began on July 8.
But a senior official within the Palestine Liberation Organisation (PLO) said Hamas appeared to have changed its position following a meeting at the weekend between exiled Hamas leader Khaled Meshaal and senior Palestinian official Saeb Erakat.
“It looks like Hamas and Islamic Jihad will agree to the Egyptian paper,” he told AFP.
The Egyptian proposal calls for both sides to immediately cease fire, and includes provisions relating to opening the borders to allow for free movement of people, goods and construction materials, as well as a clause on regulating the financial crisis within the enclave.
But crucially, it postpones discussions on the thorniest issues, such as a port and airport in Gaza, for another month “after calm and stability returns,” along with talks over exchanging the remains of two Israeli soldiers for the release of Palestinian prisoners.
Monday’s deadline marked the end of the third temporary ceasefire in a fortnight.
Israel’s army radio used a football analogy, saying the Cairo talks had passed extra time and were now entering the penalties stage.