Gaza - The UN chief called on donor states to guarantee the flow of aid to Gaza after several halted funding to the agency for Palestinians over claims some of its staff participated in the October 7 attacks.

While the row over the UNRWA aid agency for Palestinian refugees deepened, heavy attacks in the besieged Gaza Strip sent more people fleeing south towards the Egyptian border.

UNRWA said on Friday it had fired several employees over Israel's unspecified accusations about the involvement of some of its staff in Hamas' October 7 attack.

Donors including Canada, Germany, the UK, Italy, Australia, and Finland followed the lead of the United States, which on Friday said it had suspended additional funding to the agency over the accusations.

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"While I understand their concerns – I was myself horrified by these accusations – I strongly appeal to the governments that have suspended their contributions to, at least, guarantee the continuity of UNRWA's operations," UN Secretary-General Antonio Guterres said in a statement late on Saturday.

Israeli Foreign Minister Israel Katz called for UNRWA chief Philippe Lazzarini to quit after saying earlier the body "must be replaced with agencies dedicated to genuine peace and development" after the bloodiest assault on Gaza yet.

"Mr. Lazzarini please resign," Katz said on social media platform X late on Saturday in response to a post by the UNRWA chief warning that the funding cuts meant the agency's operation in Gaza was close to collapse.

Guterres said the "abhorrent alleged acts" of some UNRWA staff should not mean that its thousands of other humanitarian workers are penalized.

"The dire needs of the desperate populations they serve must be met," he said.

Hamas' October 7 attack on Israel – which came after decades of Israeli occupation – resulted in about 1,140 deaths, mostly civilians, according to Israeli figures. Militants also seized about 250 hostages and Israel says around 132 of them remain in Gaza, including the bodies of at least 28 dead captives.

Israel's ongoing military assault has killed at least 26,422 people in Gaza, most of them women and children, according to the health ministry in the territory.

Long-strained relations between Israel and UNRWA deteriorated rapidly after the UN body condemned tank shelling it said had hit a shelter for displaced people in Gaza's main southern city of Khan Younis on Wednesday.

It said tens of thousands of displaced people had been registered at the shelter and that the tank shelling killed 13 people.

The Israeli military has promised a thorough review but has also said it was examining the possibility it was a "result of Hamas fire."

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Israel's military campaign is now centered around the encircled city of Khan Younis, where it said on Saturday numerous militants were killed.

There were heavy clashes there overnight, including mortar rounds fired by militants at Israeli tanks, the armed wings of militant groups Hamas and Islamic Jihad said.

Rockets were also fired into southern Israel, they said, and there was fighting in several neighborhoods of Gaza City and further north.

At least 129 people were killed in Israeli strikes overnight, according to Gaza's health ministry, which described the health crisis in the territory as "catastrophic."

The UNRWA row follows the UN's International Court of Justice ruling on Friday that Israel must prevent possible acts of genocide in the conflict, and allow in more aid, although it stopped short of calling for a ceasefire.

Diplomatic efforts have also gathered pace.

CIA chief William Burns is to meet his Israeli and Egyptian counterparts, as well as Qatar's prime minister, in Paris soon to seek a ceasefire, a security source told AFP.

A week-long cessation of attacks in November saw Hamas release dozens of hostages in exchange for Palestinian prisoners held by Israel.

The New York Times said on Saturday US-led negotiators were getting closer to an agreement under which Israel would temporarily suspend its assault on Gaza for about two months in return for the release of more than 100 hostages.

Quoting unidentified US officials, it said negotiators had developed a draft agreement that would be discussed in Paris on Sunday.

Palestinians are fleeing further south from Khan Younis towards Rafah, close to the Egyptian border, where the United Nations says most of Gaza's estimated 1.7 million displaced people have gathered.

Many of them live in the street in "conditions of desperation conducive to a complete breakdown in order," said Ajith Sunghay of the UN Human Rights Office.

AFP images showed people wading through ankle-deep water around plastic shelters in Rafah, where bombardment still threatens.

The Doctors Without Borders (MSF) aid group has said surgical capacity at the Nasser Hospital in Khan Younis was "virtually non-existent."

The Palestinian Red Crescent Society said the Al-Amal hospital was also "under siege with heavy gunfire."