* Israel attacks some 90 targets including homes
* Palestinians say at least 11 killed in Gaza
* Militants increase rocket strikes on southern Israel
* Israel says ground operation possible but not imminent
* Violence along Gaza frontier is worst since 2012 (Updates casualties)
By Nidal al-Mughrabi and Jeffrey Heller
GAZA/JERUSALEM, July 8 (Reuters) - Israel bombarded the Gaza Strip on Tuesday in strikes that Palestinian officials said killed at least 11 people, stepping up what threatens to become a long-term offensive against Islamist group Hamas after scores of rockets hit Israeli towns.
After the worst outbreak of violence along the Gaza frontier since an eight-day war in 2012, the Israeli military said a ground invasion of the enclave was possible, though not imminent, and urged citizens within a range of 40 km (24 miles) of the coastal territory to stay close to bomb shelters.
"We are preparing for a battle against Hamas which will not end within a few days," Defence Minister Moshe Yaalon said in a statement. "We will not tolerate missiles being fired at Israeli towns and we are prepared to extend the operations with all means at our disposal in order to keep hitting Hamas."
The Israeli military said it targeted about 90 sites in aerial and naval assaults overnight and resumed air strikes on Tuesday.
The attacks killed at least six people in a house, the Palestinian Interior Ministry said. Four others died in a car struck in Gaza City, medical officials said, one of whom a pro-Hamas website identified as Mohammed Shaaban, a commander in the movement's armed wing.
There were no reports of deaths from rockets fired out of Gaza.
A source in Prime Minister Benjamin Netanyahu's office quoted the Israeli leader as saying: "The IDF (Israel Defense Forces) must be ready to go all the way. All options are on the table, including a ground invasion."
The Israeli military said it had received provisional government approval to call up as many as 40,000 reserve soldiers, but had not done so yet. Some 1,500 other reservists have already been mobilised.
Violence flared on the Israel-Gaza border last month after Israel arrested hundreds of Hamas activists in the occupied West Bank following the disappearance there of three Israeli youths on June 12.
Palestinians have launched more than 200 rockets at Israel from Gaza, the military said, since Israel mounted the dragnet while searching for the teens, who were found dead last week.
Israel has accused Hamas militants of killing them. In a suspected revenge attack, a Palestinian teen was abducted in East Jerusalem last Wednesday. His charred body was found in a forest and six Israeli suspects have been arrested.
The Israeli military said that in the past 24 hours, more than 100 rockets had been fired at Israel, a sharp increase. Some were intercepted by the Iron Dome anti-missile system and none that landed caused fatalities, although two people were wounded by shrapnel.
The heavy barrage followed the deaths, in disputed circumstances on Monday, of six Hamas men in a tunnel which the Israeli military said the militant group had built under the border to carry out an attack in Israel.
Palestinian officials said other targets in the Israeli bombardment included militants' training facilities.
RACING FOR COVER
Explosions echoed across the densely populated enclave on Tuesday, shaking buildings and sending smoke rising from targets hit by Israeli fire. In residential areas, the sounds of crying children could be heard as ambulance sirens wailed.
Some people took to rooftops to watch for Israeli aircraft and rockets streaking toward Israel.
In the Israeli port city of Ashdod, motorists scrambled out of their vehicles and raced for the relative safety of apartment house entrances as a siren sounded. The scene was repeated in other towns near the Gaza Strip. Workers at Ashdod seaport, a main Israeli commercial gateway, suspended operations.
Hamas' armed wing, the dominant force in Gaza, threatened an "earthquake" in response to Israel's attacks. But a Palestinian source close to the group said it was ready to restore calm if Israel met conditions, including a prisoner release.
The Israeli military said it launched the air strikes - dubbed "Operation Protective Edge" - after rockets were fired at southern Israeli towns, and that further Israeli reservists could be called up beyond the 1,500 mobilised to date.
Warning sirens, which police described as false alarms, sounding as far away as Tel Aviv and Jerusalem, some 70 km (40 miles) from Gaza.
In one Israeli attack overnight that destroyed a Gaza home, the Palestinian Interior Ministry said the family received a telephone call from an Israeli officer telling them to leave. But the ministry said nine neighbours were wounded.
At least one of the targeted homes belonged to a Hamas militant, according to a neighbour. Locals said the house in which six died belonged to the family of a Hamas member, and that people had been urged to congregate there as "human shields" to deter a second attack after it was targeted earlier in the day.
Setting out terms for a ceasefire, the source close to Hamas said Israel had to "stop all forms of aggression", recommit to a 2012 Egyptian-brokered truce and free prisoners it detained in the West Bank last month.
Hamas has been reeling over an Egyptian security crackdown on most of the estimated 1,200 cross-border smuggling tunnels run by the group, which Egypt says are used to take weapons into its Sinai Peninsula where Islamist insurgents are active.
A further weakening of Hamas could lead to more radical Islamist groups in Gaza becoming stronger, a scenario that could alarm the Jewish state. (Writing by Jeffrey Heller,; Editing by John Stonestreet/Mark Heinrich)