* Israel poised for ground incursion, fighting drags on
* Experts see Israel mounting tunnel-hunting missions
* Israel warns areas with 100,000 population to evacuate
* Hamas formally tells Egypt 'no' to ceasefire plan (Adds formal Hamas rejection of truce, naval shell killing 4 children)
By Nidal al-Mughrabi and Dan Williams
GAZA/JERUSALEM, July 16 (Reuters) - Israeli shelling killed four boys on a Gaza beach on Wednesday, a local health official said, and Palestinian militants fired a further 70 rockets into Israel after a failed Egyptian attempt to halt more than a week of warfare.
Israel urged the evacuation of several districts in the Gaza Strip where more than 100,000 people live, threatening ground operations to try to stem the rocket attacks.
An Israeli official said the defence minister asked Prime Minister Benjamin Netanyahu's security cabinet to authorise the mobilisation of another 8,000 reserve troops. The military has said that around 30,000 reservists have been called up since the Israeli offensive began a week ago.
Israeli experts predicted overland raids in the Gaza Strip to destroy command bunkers and tunnels that have allowed the outgunned Palestinians to withstand air and naval barrages and keep the rockets flying.
The Hamas political leadership formally rejected Cairo's ceasefire plan on Wednesday, a spokesman for the Islamist group said, a day after its armed wing spurned it and kept up rocket salvoes at Israel, which held its fire for six hours on Tuesday.
Ashraf al-Qidra of the Gaza Health Ministry said shelling from an Israeli gunboat off Gaza's Mediterranean coast killed four boys - two aged 10 and the others 9 and 11 - from one family and critically wounded another youngster on the beach.
An Israeli military spokesman had no immediate comment. Netanyahu says the armed forces try to avoid civilian casualties but that militant rocket crews deliberately put non-combatants at risk by operating in densely populated residential areas.
Ahmed Abu Hassera, who witnessed the incident at the shore, told Reuters: "The kids were playing on the beach. They were all ... under the age of 15."
Israeli shelling has frequently targeted Gaza beaches, which are suspected staging areas for militants.
"When the first shell hit land, they ran away but another shell hit them all," said Abu Hassera, whose shirt was stained with blood. "It looked as if the shells were chasing them."
Reacting to the incident, Hamas spokesman Sami Abu Zuhri told reporters in Gaza: "These crimes will not succeed to break our will. We will continue the confrontation and resistance and we promise (Israel) will pay the price for all these crimes."
Earlier, Israeli attacks in the Gaza Strip killed at least eight Palestinians, five of them civilians, and a six-year-old boy died of wounds sustained a few days ago, Gaza medics said, raising the death toll in the Hamas-dominated enclave to 208.
Gaza health officials say most of the Palestinian dead from in the worst flareup of violence with Israel in two years have been civilians.
Gaza's Al-Mezan Center for Human rights said 259 houses had been demolished by Israeli air strikes and 1,034 damaged along with 34 mosques and four hospitals.
The rocket volleys from Gaza have a race to shelters a daily routine for hundreds of thousands in the Jewish state. One Israeli has been killed in the rocket fire, most of whose projectiles have crashed on open ground or been intercepted by Israel's Iron Dome anti-missile shield.
The military said Iron Dome shot down 23 of the 70 rockets launched at Israel on Wednesday, while the others struck without causing casualties. One salvo, at coastal Ashkelon, forced visiting Norwegian Foreign Minister Borge Brende into a shelter.
In Gaza's eastern Shejaia and Zeitoun districts, bastions of popular support for Hamas and the Islamic Jihad faction, there was no sign residents were heeding the Israeli call to leave.
Authorised by Netanyahu's security cabinet to escalate the offensive, the military relayed warnings to inhabitants in northern Gaza with dropped leaflets and mass phone calls.
"Failure to comply will endanger your lives and the lives of your family," said a recorded message received by residents of Shejaia and Zeitoun, which sprawl out to the barbed-wire border with Israel.
Maher Abu Saa'ed, a 45-year-old doctor in Zeitoun, said that with many areas of Gaza under attack, nowhere was safe and he would not leave despite a telephoned Israeli warning to get out.
"To ask hundreds of people to leave their houses and go to the centre of the city is insane, a sick joke," he said.
World powers urged calm, worried about spiralling casualties in one of the world's mostly crowded areas.
HAMAS TELLS EGYPT, SORRY, BUT NO TO CEASEFIRE
Announcing the movement's formal rejection of the ceasefire plan, Abu Zuhri said: "The outcome of discussions within the internal institutions of the movement was to reject the proposal and, therefore, Hamas informed Egypt last night it apologises for not accepting it."
Hamas leaders have said any Gaza ceasefire must include an end to Israel's blockade of the territory, recommitment to a truce reached in an eight-day war there in 2012 and the release of hundreds of its activists arrested in the occupied West Bank while Israel hunted for three abducted Jewish seminary students.
The three teens were later found dead, and a Palestinian youth was later murdered in what appeared a revenge attack by Israelis. Those killings led to the current bout of hostilities.
Hamas also wants Egypt to ease curbs at its Rafah crossing with Gaza, imposed after the toppling of Islamist President Mohamed Mursi in Cairo a year ago.
The truce proposal announced by Egypt's Foreign Ministry spoke only in general terms about opening Gaza's borders and made no mention of the Hamas men held by Israel.
Hamas has faced a cash crunch and Gaza's economic hardship has deepened as a result of Egypt's destruction of cross-border smuggling tunnels. Cairo accuses Hamas of assisting anti-government Islamist militants in Egypt's adjacent Sinai peninsula, an accusation that the Palestinian group denies.
An Israeli official said "the direction now is to continue air strikes and, if need be, enter with ground forces in a tactical, measured manner".
While tunnel-hunting incursions would be far short of a full-scale invasion and reoccupation of a territory from which Israel withdrew in 2005, it would be a risky and time-consuming mission vulnerable to Palestinian ambushes.
But Amos Yadlin, a former commander of Israeli military intelligence, played down the operational risk to Israel.
"The tunnels cannot be tackled except from the Palestinian side, but they are in relatively uninhabited areas," he said. "We would not have a problem maintaining control. I don't accept the argument that this would be a sinkhole back into Gaza." (Additional reporting by Maayan Lubell and Allyn Fisher-Ilan in Jerusalem, Noah Browning in Gaza and Michael Georgy and Yasmine Saleh in Cairo; Writing by Dan Williams; Editing by Jeffrey Heller and Mark Heinrich)
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