Israeli forces yesterday launched their most furious assault on the Gaza Strip yet, killing a top Hamas leader and shelling a key United Nations compound, amid intensifying diplomatic efforts to end the 20-day conflict.

The strikes killed Saeed Seyyam, the Hamas interior minister and the most senior leader of the Islamist group to die so far. News of his death came as the Israeli security cabinet met last night to discuss an Egyptian ceasefire proposal. However, it decided only to dispatch Tzipi Livni, the foreign minister, to Washington.

Her trip is an effort to finalise a US-Israeli agreement aimed at preventing weapons smuggling along the Gaza-Egypt border and cracking down on arms shipments to Hamas long before they reach the territory's borders.

The tentative diplomatic progress was overshadowed by Israeli attacks on key civilian targets inside Gaza, including on the UN's main warehouse containing food, fuel and medicine in Gaza City. Ban Ki-moon, the UN secretary-general, described the shelling as an "outrage".

The compound, which served as a shelter for 700 Palestinians at the time of the attack, was set ablaze by shells using white phosphorus, according to the UN Relief and Works Agency. The fire raged for most of the day, engulfing Gaza City in black smoke and destroying supplies and vehicles.

The Israeli assault on the densely populated territory claimed the lives of at least 70 more Palestinians,as the bombardment from the air and land drove thousands from their homes.

Almost 1,100 Palestinians and 13 Israelis have died since the conflict began.

Israel has refused to comment on accusations that its forces are using white phosphorus, which can be used to hide military operations and causes horrific injuries when it touches the skin, human rights groups say.

Mr Ban, on a mission to the Middle East, said he had conveyed his "strong protest and outrage" during a meeting with Israeli leaders in Jerusalem, and demanded an investigation into the shelling. Ehud Olmert, Israel's prime minister, apologised for the incident but also said that Israeli troops had come under attack from the compound - a claim immediately dismissed by UN officials.

The attack on the compound was launched on the same day that Israeli forces hit a Gaza City hospital, destroying two floors and setting it ablaze, as well as a skyscraper that housed international media groups. A second warehouse for relief supplies, run by the Palestinian Red Crescent society, was also shelled.

The attacks reflected a marked escalation in Israel's offensive against the Hamas-controlled Gaza Strip but it also came as diplomats said a ceasefire was nearing.

Egyptian officials said a meeting with a senior Israeli official to discuss their ceasefire initiative had gone well but they were awaiting a final decision from Israeli leaders. The Egyptian plan calls for a temporary humanitarian ceasefire as well as talks on guarantees that Hamas will not be able to re-arm and that Israel will end its blockade.

But an Israeli government spokesman dismissed prospects for an impending 10-day lull in the fighting, which Egypt had discussed with Hamas on Wednesday.

With Israeli forces pushing deeper into Gaza City, there was mounting panic among residents.

"It is terrible, the area is so dangerous," said Mohammed al-Aloul, a Gazan interviewed by phone. "Families are trying to escape."

In recent days officials have said Israel has already gone some way to achieving its war aims, arguing that the offensive has dealt a severe blow to Hamas's military capabilities.