The heaviest battle of the year so far was under way in Khan Younis, a city that is sheltering hundreds of thousands of people who fled the north earlier in the war, now in its fourth month.

The charity Medecins Sans Frontieres, which has doctors at the city's Nasser Hospital, said patients and displaced people sheltering there were fleeing in panic.

In Rafah, further south, 16 bodies were laid out on the bloodstained cobbles outside a morgue, most in white shrouds, a few in plastic body bags: a branch of the Zameli family wiped out in a strike that destroyed their home overnight.

Half the bundles were tiny, holding the bodies of small children. Authorities said 17 people were killed in total.

A grey-haired man howled in sorrow as he clung to one of the bodies, burying his face in the face of the shrouded corpse. A woman in a pink headscarf keened and stroked one of the shrouds.

At the scene of the bombing, the home had been completely obliterated. A girl's tattered princess schoolbag lay in the rubble. Tears rolled down the cheeks of 10-year-old cousin Mahmoud al-Zameli, who lived next door and had escaped.

"Yesterday, I was playing with the children over there. They have all died," he sobbed.

"I'm the only one still alive."

More than three months into a war that has killed more than 24,000 Palestinians and laid much of the Gaza Strip to waste, Israel has said it is planning to wind down its ground operations and shift to smaller-scale tactics.

But before doing so, it appears determined to capture all of Khan Younis, which Israel says is a main base for the Hamas fighters who stormed through the border fence on Oct. 7, killing 1,200 people and seizing 240 hostages.

Israelis marked the first birthday of the youngest hostage, Kfir Bibas, who was not among the scores of women and children released during a week-long truce in late November.

Hamas says Kfir, his 4-year-old brother Ariel and their mother Shiri were killed in an Israeli air strike but, unlike in the cases of other slain hostages, has not released images confirming their deaths.

"His whereabouts are unknown," Israeli President Isaac Herzog said at the World Economic Forum in Davos in Switzerland, sitting next to a photograph of the baby. "I call upon the entire universe to work endlessly to free Kfir and all the hostages."

FIGHTING APPROACHES KEY HOSPITAL

Khan Younis residents said on Thursday the fighting had come closer than ever to Nasser Hospital, the biggest hospital still working in the enclave, raising fears it would fall under siege and be shut like Shifa, the main hospital in the north, captured by Israeli forces in November.

"What is happening in Khan Younis now is complete madness: the occupation bombards the city in all directions, from the air and the ground too," said Abu El-Abed, 45, displaced several times with his family of seven since leaving Gaza City in the north earlier in the war.

"It is similar to what happened in Gaza before they took control of Al Shifa hospital," he said by phone from Rafah, further south, where he was looking for supplies and scouting for possible places to move his family again. "In the last three days, they have destroyed complete residential districts in the centre of the city and also in the eastern town of Abassan."

Khan Younis itself is cut off from communication by a week-old mobile phone and internet blackout. Gazans can communicate with the outside only by accessing Egyptian or Israeli mobile networks close to the border fence.

The Israeli military said it had killed 60 fighters in the previous 24 hours, including 40 in Khan Younis. The figures were impossible to verify but give an idea of the location and intensity of the fighting.

Two-thirds of Gaza's hospitals, including all medical facilities in the northern half of the enclave, have already ceased functioning altogether, and the rest are only partly functional. Losing Nasser would sharply curtail the limited trauma care still available for Gaza's 2.3 million residents.

"According to MSF's surgeon in Nasser hospital, last night Israeli forces heavily bombed the area close to the hospital with no prior evacuation order, causing patients and many of the thousands of displaced civilians who had sought refuge in Nasser to flee in a panic," the medical charity said on X.

In a video that included footage of dark columns of smoke rising above crowded central Khan Younis, MSF Head of Mission for Palestine Leo Cans, who reached the hospital, said the fighting had come "very close".

"We hear a lot of bombing around. A lot of shooting around," he said. "The wounded people that we take care of, many of them lost their legs, lost their arms. There are really complex wounds that require a lot of surgery. And we don't have the capacity to do this now. The situation has to stop."

(Reporting by Nidal al-Mughrabi in Doha, Arafat Barbakh, Mohamed Salem, and Bassam Masoud in Gaza, Dan Williams in Jerusalem; Writing by Peter Graff; Editing by Kevin Liffey)

By Bassam Masoud and Nidal al-Mughrabi