GAZA (Reuters) - Israeli air strikes flattened bastions of Hamas rule in the Gaza Strip on Monday in the third day of an offensive that has killed more than 325 Palestinians in the deadliest violence in the territory in decades.

"We have an all-out war against Hamas and its kind," Israeli Defence Minister Ehud Barak said in parliament, using a term he has employed in the past to describe a long-term struggle against Israel's Islamist enemies.

Broadening their targets to include the Hamas government in the Gaza Strip, Israeli warplanes bombed the Interior Ministry, which supervises 13,000 members of the group's security forces. The building had been evacuated and there were no casualties.

Israel also targeted the homes of at least two top commanders in Hamas's armed wing. The commanders were not at home at the time but several family members were killed.

Hamas, an Islamist movement that took over the Gaza Strip in 2007, defied the Israeli assaults, the fiercest in the coastal enclave since the 1967 Middle East war.

Its forces fired a rocket salvo into the Israeli city of Ashkelon, killing one person, the second such fatality since Israeli bombing began on Saturday.

Israel has said the offensive -- launched by a centrist government six weeks before a national election that opinion polls have predicted the right-wing Likud party will win -- is aimed at halting rocket attacks that intensified after a six-month ceasefire with Hamas expired on December 19.

Palestinian medical officials put the Gaza death toll at more than 325 and said more than 700 people have been wounded.

The United Nations Relief and Works Agency said at least 57 of the dead were civilians. It based the figure, which an UNRWA spokesman called "conservative," on visits by agency officials to hospitals and medical centers.

Israel declared areas around the Gaza Strip a "closed military zone," citing the risk from Palestinian rockets, and ordering out journalists observing a build-up of armored forces preparing for a possible ground invasion of the territory.

Excluding the press could help Israel keep under wraps its preparations for a Gaza incursion following three days of air strikes that have caused chaos, turned some buildings to rubble and left hospitals struggling to cope.

Wounded Gazans trickled one by one into Egypt and 10 trucks carrying medical supplies were allowed to cross into the blockaded territory. Border officials said about 30 Palestinians were expected to leave the territory for treatment.

Oil prices rose above $40 a barrel on Monday, boosted by the weak dollar and violence between Israel and Hamas that served as a reminder of tensions that could threaten crude supplies from the Middle East.

DESTRUCTION

Most Gazans in the densely populated enclave stayed at home, in rooms away from windows that could shatter in blasts from air strikes on Hamas facilities. Residents of southern Israel ran for shelter at the sound of alarms heralding incoming rockets.

"At no time could we leave the kids unattended. They trembled every time there was a bombing, day and night, and all of us had almost no sleep," said Umm Hassan, a mother of seven, in Gaza.

In Khan Younis in the southern Gaza Strip, an air strike killed a local commander of Islamic Jihad, three other members of the militant group and a child as they stood in the street, medical workers said. Islamic Jihad said the commander was wanted by Israel and it described his death as an assassination.

Israeli aircraft also destroyed a laboratory building at the Islamic University, an institution that is a significant cultural symbol in Gaza.

Mark Regev, a spokesman for Israeli Prime Minister Ehud Olmert, said the offensive would go on until the population in southern Israel "no longer live in terror and in fear of constant rocket barrages."

"(The operation could) take many days," said military spokesman Avi Benayahu.

In what it called a "terrorist" attack, the Israeli army said a Palestinian stabbed three Israelis in the Jewish settlement of Kiryat Arba in the West Bank before he was shot by a passer-by and arrested. One of the wounded Israelis was in a serious condition.

Hamas spokesman Fawzi Barhoum has urged Palestinian groups to use "all available means" against Israel, including martyrdom operations" -- a reference to suicide bombings.

The Gaza operation and civilian casualties have enraged Arabs across the Middle East. Protesters burned Israeli and U.S. flags in several places to press for a stronger response from their leaders.

Foreign Minister Tzipi Livni, head of the ruling Kadima party and a candidate for prime minister in the February 10 election, said the army was targeting gunmen but "unfortunately in a war ... sometimes also civilians pay the price." Chief Palestinian negotiator Ahmed Qurie said U.S.-backed peace talks with Israel have been put on hold, citing the Gaza offensive. The negotiations over the past year have achieved little visible progress.

The U.N. Security Council called for a halt to the violence, but U.S. President George W. Bush's administration, in its final weeks in office, has put the onus on Hamas to renew the truce.

Egyptian Foreign Minister Ahmed Aboul Gheit said during a visit to Turkey that "Israel must stop its killing operations against Palestinians." He called for an immediate ceasefire.