The United Nations says it is "completely overwhelmed" by the number of Palestinians seeking refuge in its Gaza camps.

Chris Gunness, spokesman for the United Nations Relief and Works Agency (UNRWA), told Sky News its shelters were "overflowing" and that "Gaza is being destroyed".

"Eight of my colleagues have been killed. We simply can't cope," said Mr Gunness.

"The Israeli army has been dropping leaflets over Gaza telling people to leave their homes.

"We may well soon be in a position where there are tens of thousands stranded in the streets of Gaza with missiles flying in, rockets flying out.

"These people will be without food, shelter, blankets, mattresses, without water.

"The parties to this conflict need to realise that UNRWA does not have an infinite capacity to absorb the consequences of their military campaign."

Some 245,000 Palestinians have fled to 80 UN-run schools and other public buildings as their homes have been destroyed by Israeli rockets, or are under threat of being hit.

A rocket which hit a camp in Jebalya on Wednesday morning as families slept killed at least 16 people and has been widely condemned.

Israel has said it is investigating the incident and reiterated it does not intentionally target civilians.

It blames Hamas for embedding itself among the civilian population and points to the fact that the group's rockets have been found in three UN schools.

Mr Gunness conceded that Hamas fighters had infiltrated three of its facilities but said that militants had taken advantage of empty schools "mothballed" for the summer.

"As soon as we found out about this ... we proactively told the parties about them, we issued a public condemnation.

"Were we expected to chuck these weapons in the back of a pick-up and drive them through a warzone and somehow disable them? Or drive them across the confrontation line and give them to Israel?"

The UN says nearly 1,300 Palestinians have been killed since Israeli began rocket attacks early in July.

"Gaza is being destroyed," said Mr Gunness.

"On the ground, the effort to rebuild Gaza is going to be very long and very expensive and the people who are stranded ... what is going to happen to them?"

"When this war is over they will have nowhere to go. We cannot have a situation where these people are left in these totally overcrowded UNRWA schools."

Israel's prime minister, Benjamin Netanyahu, has said the country will not agree a ceasefire until all of Hamas' cross-border "terror tunnels" are destroyed.