Israeli helicopters struck Gaza's Rafah on Thursday, residents said, with Hamas reporting street battles in the southern city after top US diplomat Antony Blinken said a truce was still possible.

But the war raged on, and tensions soared on Israel's northern border with more attacks by Lebanon's Hezbollah forces targeting military positions.

Israel, which has traded near-daily fire with Hamas ally Hezbollah since the start of the Gaza war, said it would respond "with force".

Israeli ground forces have been operating in Rafah since early May, despite widespread alarm over the fate of Palestinian civilians there, including in a ruling by the International Court of Justice later that month.

Western areas of Rafah came under heavy fire on Thursday from the air, sea and land, residents said.

Hamas said its fighters were battling Israeli troops on the streets in the city, near the besieged Gaza Strip's border with Egypt.

Efforts to reach a truce stalled when Israel began ground operations in Rafah, but US President Joe Biden in late May launched a new effort to secure a deal.

On Monday the UN Security Council adopted a US-drafted resolution supporting the plan.

Blinken, in Doha on Wednesday to promote Biden's ceasefire roadmap, said Washington would work with regional partners to "close the deal".

Senior Hamas official Osama Hamdan said the group sought "a permanent ceasefire and complete withdrawal" of Israeli troops from Gaza, demands repeatedly rejected by Israel.

The plan includes a six-week ceasefire, a hostage-prisoner exchange and Gaza reconstruction.

It would be the first truce since a week-long November pause in fighting saw hostages freed and Palestinians released from Israeli jails.

Blinken said Israel was behind the plan, but Israeli Prime Minister Benjamin Netanyahu, whose government has far-right members strongly opposed to the deal, has not publicly endorsed it. (AFP)