Israel has said it is calling up another 16,000 reservists, giving the military the ability to substantially widen its bloody Gaza offensive.
More than 1,360 Palestinians have been killed since the fighting began on July 8. Fifty-six Israeli soldiers and three civilians on the Israeli side have lost their lives.
The reserves development comes after another day of heavy fighting, with 116 Palestinians killed yesterday, along with three Israeli soldiers.
Israel has now called up a total of 86,000 reserves during the Gaza conflict.
The Jewish state faced outrage yesterday after artillery shells tore through the walls of a United Nations school crowded with sleeping war refugees and back-to-back explosions rocked a market filled with shoppers.
After yesterday's strikes near the shopping area in Gaza City, bodies lay scattered in the streets as the wounded screamed for help.
Some 3,300 Gazans seeking refuge from the fighting had been crammed into the UN school at the Jebaliya refugee camp when a series of Israeli shells hit before daybreak, turning a classroom where families had been sleeping into a tragic scene of bloodied clothing, bedding and debris.
Assad Sabah said he and his five children were huddled under desks because of the constant sound of tank fire throughout the night, when mayhem struck.
"We were scared to death," he said. "After 4.30am, tanks started firing more. Three explosions shook the school. One classroom collapsed over the head of the people who were inside."
Palestinian health officials said at least 17 people were killed and 90 wounded in the school attack - the latest in a series of strikes the United Nations says has hit UN buildings supposed to be safe zones in the 23-day-old war.
"Where will we go next?" wailed 56-year-old Aishe Abu Darabeh, sitting dazed outside a classroom after the shelling. "We fled and they are following us."
Israel's military said no UN facility had been targeted intentionally during the operation, but troops had responded to Hamas mortar fire directed at Israeli soldiers near the school.
But the chief of the UN aid agency for Palestinian refugees expressed "anger and indignation" at Israeli forces firing towards a UN facility even after being told 17 times, including just hours before the shelling, that it was filled with civilians.
"Enough is enough," Pierre Kraehenbuehl said, noting that six UN schools had been hit since the fighting began.
UN secretary general Ban Ki-moon called the school shelling "outrageous" and "unjustifiable" and demanded an immediate humanitarian ceasefire. "Nothing is more shameful than attacking sleeping children," he said.
At least 116 Palestinians were killed yesterday, including 16 in the shopping area, while the overall Palestinian death toll since July 8 climbed to 1,361, said Palestinian health official Ashraf al-Kidra.
The Israeli military said three of its soldiers were killed when a booby-trapped house collapsed after they identified an entrance to a Hamas tunnel inside. In all, 56 soldiers have been killed, as well as two Israeli civilians and a Thai citizen.
Yesterday marked a second day of particularly heavy Israeli air and artillery attacks, at a time when Egyptian ceasefire efforts appeared to be stalling. Israeli media said last night that Israel's Security Cabinet decided to press forward with the operation.
Egyptian officials, meanwhile, met an Israeli envoy about Israel's conditions for a ceasefire, including disarming Hamas, according to a high-ranking Egyptian security official.
Hamas has said it will only halt fire once it receives guarantees that the Gaza border blockade by Israel and Egypt will be lifted. Rejecting calls for an unconditional ceasefire, Hamas has fired dozens of rockets at Israel each day.
Israel, in turn, has said its forces will stay in Gaza at least until they complete the demolition of more than 30 Hamas military tunnels used for launching attacks on Israel.
Brig Gen Mickey Adelstein, commander of the Gaza Regional Division, said two-thirds had been destroyed and that it would take "a few more days" to destroy the rest.
Israel says it wants to decimate Hamas' rocket-launching capability, diminish its weapons arsenal and demolish the tunnels. It has launched more than 4,000 strikes against Hamas-linked targets, including rocket launchers and mosques where it says weapons were stored.
Israeli strikes have also hit dozens of homes. Mahmoud Abu Rahma of the Palestinian human rights group Al Mezan said nearly half of the Palestinians killed so far died in their homes.
Israeli officials have accused Hamas of using Gaza's civilians as human shields by firing rockets from crowded neighborhoods and putting them at risk in the event of an Israeli counterstrike.
But Mr Kraehenbuehl said Israel must try harder to ensure that civilians are not hurt, especially in Gaza where 1.7 million people are squeezed into a small coastal territory. His agency has opened 80 of its schools to more than 200,000 Gazans fleeing the violence.
"What maybe the world forgets ... is that the people of Gaza have nowhere to go," he said. "So when the fighting starts and they move, it is not as if they can cross a border to somewhere."
Yigal Palmor, spokesman for the Israeli Foreign Ministry, called yesterday's deaths at the UN school "tragic," but blamed "Hamas's criminal entrenchment within civilian populations and its frenzy to wage war within civilian establishments".
He noted that Mr Kraehenbuehl's UN agency has issued three statements about finding weapons in empty schools, presumably stashed there by militants.
The White House also condemned the deadly school shelling.
The Obama administration is "extremely concerned" that thousands of Palestinians aren't safe in UN-designated shelters, White House spokeswoman Bernadette Meehan said.