* Palestinians say 53 dead in Gaza, mostly civilians
* Gaza rockets hit deeper inside Israel
* Violence along Gaza frontier is worst since 2012 (Updates casualties, Netanyahu says operation could take time, news agency reports Egypt to open Gaza border crossing; paragraphs 6, 10, 19, 31)
By Nidal al-Mughrabi and Jeffrey Heller
GAZA/JERUSALEM, July 9 (Reuters) - Israeli air strikes shook Gaza every few minutes on Wednesday, and militants kept up rocket fire at Israel's heartland in intensifying warfare that Palestinian officials said has killed at least 53 people in the Hamas-dominated enclave.
Missiles from Israel's Iron Dome defence system shot into the sky to intercept rockets launched, for the second straight day, at Tel Aviv, the country's commercial capital. Some were also aimed at Israel's Dimona nuclear plant, 80 km (50 miles) from Gaza, but were either shot down or landed in open country.
With cries of "Allahu akbar" (God is Greatest), Palestinians in the Gaza Strip cheered as rockets streaked overhead toward Israel, in attacks that could provide a popularity boost for Islamist Hamas, whose rift with neighbouring Egypt's military-backed government has deepened economic hardship.
Dimona, desert site of a nuclear reactor and widely assumed to have a role in atomic weaponry, was targeted by locally made M-75 long-range rockets, militants said. The Israeli army said Iron Dome shot down one and two others caused no damage. It was unclear how close they came to the town or the nuclear site.
Communities near coastal Tel Aviv and in the south, closer to Gaza, were also targeted. In the longest-range attack since Tuesday, when Israel stepped up its offensive, a rocket hit near Zichron Yaakov, a town 115 km (70 miles) north of Gaza.
At least 45 civilians, including 12 children, were among the 53 Palestinian killed in two days of fighting, and more than 340 people have been wounded, hospital officials said. Forty-five of those killed were civilians, and 12 were under 18 years old.
No Israeli deaths or serious injuries were reported and Israeli news reports hailed as heroes the military crews of the Iron Dome batteries, which are made in Israel and partly funded by the United States. The military said 48 rockets struck Israel on Wednesday, and Iron Dome intercepted 14 others.
With frequent explosions from air strikes echoing through Gaza City, its main shopping street was largely deserted. Residents reported hundreds of attacks on Wednesday.
The Israeli military said it had bombarded 550 Hamas sites, including 60 rocket launchers and 11 homes of senior Hamas members. It described those dwellings as command centres.
In the latest strikes, Israel targeted a car marked as a media vehicle of a Gaza website which had the letters "TV" on it and killed the driver, four others were killed in the bombing of a cafe in Khan Younis in the southern Gaza Strip, and a 37-year-old man was killed in central Gaza, hospital officials said.
Palestinian officials said at least 25 houses were either destroyed or damaged, and not all belonged to militants.
The fighting is the most serious between Israel and Gaza militants since an eight-day war in 2012. Violence began building up three weeks ago after three Jewish students were abducted in the occupied West Bank and later found killed. Last week, a teenage Palestinian was kidnapped and found killed in Jerusalem.
Cairo brokered a truce in the conflict two years ago, but the current, military government's hostility toward Islamists in general and to Hamas, which it accuses of aiding fellow militants in Egypt's Sinai peninsula, could make a mediation role more difficult. Hamas denies those allegations.
Palestinian rocket barrages have sent Israelis racing for bomb shelters, with radio stations constantly interrupting broadcasts to announce where sirens have sounded. But the Tel Aviv Stock Exchange seemed untroubled, ending the day with shares slightly higher.
Israeli leaders, who seem to have wide popular support at home for the Gaza operation, have warned of a lengthy campaign and possible ground invasion of one of the world's most densely populated territories, home to nearly 2 million Palestinians.
"We have decided to step up even more the attacks on Hamas and terrorist organisations in Gaza," Prime Minister Benjamin Netanyahu said in a statement.
"The Israel Defence Forces are prepared for every option. Hamas will pay a heavy price for firing at Israeli citizens."
Netanyahu's security cabinet has already approved the potential mobilisation of up to 40,000 reserve troops.
"This operation could take time. We are resolved to defend our families and our homes," the prime minister said.
Netanyahu's office said he had discussed the situation with United Nations Secretary-General Ban Ki-moon, German Chancellor Angela Merkel and U.S. Secretary of State John Kerry and that he would speak to other world leaders later.
Washington backed Israel's actions in Gaza, while the European Union and United Nations urged restraint on both sides.
U.S. President Barack Obama, in a German newspaper article to be published on Thursday, said: "At this time of danger, everyone involved must protect the innocent and act in a sensible and measured way, not with revenge and retaliation."
Life appeared deceptively normal in Israeli cities, where shops were open and roads clogged with traffic. But questions were being asked on radio talk shows about an exit strategy and a timeframe for the offensive.
At a sidewalk cafe on a fashionable avenue in Tel Aviv, patrons seemed to take an air raid siren in their stride, staying in line for their coffee as joggers and cyclists passed.
Some 80 km (50 miles) away, outside homes hit by air strikes in Gaza, there were scenes of panicked neighbours, including mothers clutching crying children, running into the street to escape what they feared would be another attack.
At one convenience store, which had remained open, customer Abu Ahmed, 65, said he was pleased by the militants' resolve. "I am fine, as long as Tel Aviv is being hit," he said as he bought cigarettes.
In an air strike on a home in the north of the Gaza Strip, a leader of the Islamic Jihad group and five of his family were killed, the Palestinian Interior Ministry said. An 80-year-old woman was killed in an Israeli attack on another target in the centre of the 40-km-long (25-mile-long) territory, local officials said.
A 60-year-old man and his son were killed when two missiles hit their house in Beit Hanoun in the north.
Israeli strikes on militants' homes, local residents said, are usually preceded by either warning fire or a telephone call telling its inhabitants to flee, in an attempt by Israel to avoid civilian casualties. But such bombing sometimes wounds or kills people in neighbouring houses.
Palestinian President Mahmoud Abbas, who is based in the Israeli-occupied West Bank and entered a power-sharing arrangement with Hamas in April after years of feuding, said he had spoken to Egypt about the Gaza crisis. "This war is not against Hamas or any faction but is against the Palestinian people," the Western-backed leader said.
Egypt's state news agency said Egyptian authorities had decided to open the Rafah border crossing to Gaza on Thursday to allow wounded Palestinians to receive medical care in Egypt.
Under President Abdel Fattah al-Sisi, Cairo has secured closures on the Gaza border, increasing economic pressure on Hamas from a long-running Israeli blockade.
"Sisi stressed Egypt was interested in the safety of the Palestinian people in the Gaza Strip and sparing this grave assault," a statement from Abbas's office said, adding that Cairo would "exert efforts to reach an immediate ceasefire".
But an Israeli minister appeared to play down any expectations that Egypt would intervene soon.
In the West Bank, about 400 Palestinian youths, chanting their support for Hamas's armed wing, threw stones at an army checkpoint. Troops responded with teargas and rubber bullets.
Israel has blamed Hamas for the killing of the three Jewish seminary students who disappeared while hitchhiking in the West Bank on June 12. Hamas has neither confirmed nor denied a role.
The rocket fire from Gaza began after Israel arrested hundreds of Hamas activists in a West Bank sweep it mounted in tandem with a search for the youths, who were found dead last week. A Palestinian teen was abducted and killed in Jerusalem last Wednesday in a suspected revenge murder. Six Israelis have been arrested in that case.
While threatening an "earthquake" of escalation against Israel, Hamas said it could restore calm if Israel halted the Gaza offensive, once again committed to a 2012 truce and freed the prisoners it detained in the West Bank last month. (Additional reporting by Dan Williams, Maayan Lubell and Ori Lewis in Jerusalem, Noah Browning and Ali Sawafta in Ramallah and Mark Felsenthal and David Brunnstrom in Washington; Writing by Jeffrey Heller; Editing by Will Waterman, Alastair Macdonald and Mohammad Zargham)