* Two Palestinian rockets shot down over Tel Aviv
* Security Council called; US wants de-escalation
* Israel drafts 20,000 reservists, weighs invasion (Updates death toll, adds Tel Aviv barrage)
By Nidal al-Mughrabi and Allyn Fisher-Ilan
GAZA/JERUSALEM, July 10 (Reuters) - Israeli air strikes killed eight members of a family including five children in a pre-dawn raid on Gaza on Thursday, Palestinian officials said, while Hamas-led fighters launched rockets at Tel Aviv and other Israeli cities.
Israel's military had no immediate comment on the report of the deadliest single bombing raid since its Gaza offensive began on Tuesday. The Palestinian Health Ministry said the strike destroyed at least two homes in Khan Younis in southern Gaza.
U.N. Secretary-General Ban Ki-moon, who will brief the Security Council on the crisis later on Thursday, condemned the rocket attacks and urged Israel to show restraint. "Gaza is on a knife edge," he told reporters.
At least 66 Palestinians have been killed in the violence, more than 50 of them civilians, Gaza medical officials said.
Israel says its offensive is intended to halt rocket fire at its cities from the Gaza Strip. More than 320 rockets have been fired during the campaign, reaching into the country's interior.
The rockets have caused no serious casualties, due in part to interceptions by Israel's Iron Dome aerial defence system.
But the barrages but have paralysed business in southern communities and sent hundreds of thousands of people scrambling for shelter in Tel Aviv, the commercial capital, in cities close to northern Haifa port and in the holy city of Jerusalem.
Dimona, a southern desert town where Israel's main nuclear reactor is located, was shelled on Wednesday but the military said those rockets were either intercepted or fell wide.
Hamas, the dominant Islamist group in Gaza, said it fired eight rockets at Israel early on Thursday, two of them at Tel Aviv, where witnesses saw them being shot down by Iron Dome.
Lieutenant-Colonel Peter Lerner, an Israeli military spokesman, said Iron Dome also intercepted rockets launched at the cities of Beersheba and Ashkelon overnight.
"We are putting the pressure up every day," he said. "Is it leading a to a ground force incursion? I still can't confirm that will actually happen. I can confirm that we are making all necessary preparations in order to be ready for that."
The Israeli military had called up 20,000 reserve troops to back up regular forces mobilised for Gaza, Lerner added.
Palestinians said Israel bombed more than 120 homes since Tuesday. Several Gaza government buildings were hit on Thursday.
SECURITY COUNCIL CONVENING
The violence began building up three weeks ago after three Jewish students were abducted in the occupied West Bank. They were killed and their bodies were found last week. Then a Palestinian teenager was kidnapped and killed in Jerusalem.
While backing Israel's right to self-defence, Washington on Wednesday called on both sides to de-escalate.
Israel said it had bombed 750 militant targets in Gaza, including rocket launchers and homes of senior Hamas and Islamic Jihad members. It described those dwellings as command centres.
In an attack after darkness fell on Wednesday, Israel targeted a car marked as a media vehicle of a Gaza website, killing the driver, medical officials said. They said six people died in the bombing of a cafe in Khan Younis, and a 37-year-old man was killed in central Gaza.
An Israeli air strike killed three members of the Islamic Jihad militant group in a car on Thursday, both sides said.
Cairo brokered a truce after an eight-day war between Israel and Gaza militants two years ago, but the current military government's hostility towards Islamists in general, and Hamas in particular, which it accuses of aiding fellow militants in Egypt's Sinai peninsula, could make any Egyptian mediation role difficult now.
Israeli leaders, who have popular support for the Gaza offensive, have warned the campaign may be lengthy and widen into a ground invasion of one of the world's most densely populated territories.
U.S.-backed Palestinian President Mahmoud Abbas, who is based in the West Bank, denounced the offensive on Wednesday.
"This war is not against Hamas or any faction but is against the Palestinian people," said Abbas, who entered a power-sharing deal with Hamas in April after years of feuding.
Hamas's attacks against Israel are seen as an effort to boost the popularity of the Islamists, whose rift with Egypt's military-backed government has worsened economic hardship for the nearly 2 million Palestinians in the enclave.
Israel has blamed Hamas for killing the three Jewish seminary students who disappeared while hitchhiking in the West Bank on June 12. Hamas has neither confirmed nor denied a role. (Writing by Allyn Fisher-Ilan; Editing by Mohammad Zargham, Ken Wills and Andrew Heavens)