Israel bombarded southern Gaza on Friday after it publicly sparred with its main ally the United States over the possibility of a Palestinian state, the creation of which Washington sees as the only pathway to a lasting peace.

Witnesses reported gunfire and air strikes early on Friday in Khan Yunis, the main city in the south of the Gaza Strip, where Israel says many members and leaders of the Palestinian movement Hamas are hiding, as reported by GulfNews.

The Palestinian Red Crescent reported "intense" artillery fire near the Al-Amal hospital, while Gaza's Hamas-run health ministry said 77 people were killed and dozens injured overnight.

The World Health Organisation (WHO) said overnight it had counted 24 cases of hepatitis A and "thousands" of cases of jaundice likely linked to the spread of the viral liver infection.

"The inhumane living conditions - almost no drinking water, clean toilets or ability to keep the surroundings clean - will allow hepatitis A to spread further," WHO chief Tedros Adhanom Ghebreyesus said on X, formerly Twitter, describing the health crisis as "explosive".

The Israeli military said its Givati Brigade was fighting as far south as its troops had reached so far in the campaign.

"The soldiers eliminated dozens of terrorists in close-quarters combat and with the assistance of tank fire and air support," it said.

The United Nations says the war, which began with the unprecedented Hamas attacks on Israel on October 7, has displaced roughly 85 per cent of Gaza's 2.4 million people.

Many are crowded into shelters where they struggle to get food, water, fuel and medical care. UN agencies say improved aid access is needed urgently as famine and disease loom.