Israel has freed two Israeli-Argentine hostages held by Hamas in Rafah in a ferocious rescue operation that killed 74 Palestinians in the southern Gaza city where about one million civilians have sought refuge from months of bombardments.

The mission by the Israeli military, the Shin Bet security service and a special police unit on Monday freed Fernando Simon Marman, 60, and Louis Hare, 70, the military said. They were among 250 people seized during the October 7 raid on Israel by Hamas militants that triggered Israel’s war on Gaza.

More than four months on, much of the densely populated strip of land on the Mediterranean is in ruins, with 28,340 Palestinians dead and 67,984 wounded, according to Gaza health officials, with many others believed to be buried under rubble.

The Israeli military says 31 hostages have died in that time, but Prime Minister Benjamin Netanyahu said Monday’s rescue showed military pressure should continue and he brushed aside international alarm at plans for a ground assault on Rafah.

Washington welcomed the hostage release, but said it was pushing Israel for a ceasefire and increased aid for Gaza.

In the Israeli-occupied West Bank, the Palestinian Authority’s official television station, Palestine TV, said 74 Palestinians were killed in the Israeli operation in Rafah. There was no immediate confirmation from the Gaza health ministry, which is run by Hamas.

An Israeli military spokesman said the hostages were being held on the second floor of a building that was breached with explosives during the raid amid heavy exchanges of gunfire with surrounding buildings.

Hamas said a further three hostages injured in recent Israeli airstrikes had now died, adding the fate of other wounded hostages was not yet clear.

Israel’s military said airstrikes had coincided with the raid to allow its forces to be extracted.

People in Rafah said two mosques and several residential buildings were hit in more than an hour of strikes, which also ripped through tents where people had taken shelter.

Wounded children lay waiting for treatment in the Kuwait hospital in Rafah.

Israel said many of those killed are militants. The Gaza ministry says 70 per cent are civilians.

Some Palestinians feared Israel had begun a long-expected ground offensive in the city.

But US State Department spokesperson Matthew Miller said the US did not believe the strikes were the beginning of a full-scale ground attack.

Hamas militants killed 1200 people in the October 7 incursion into Israel, according to Israeli tallies. Israel said it had killed more than 12,000 Hamas militants and taken out three-quarters of its battalions, of which it said earlier that four were in Rafah.

Many Western leaders have expressed alarm at Israel’s offensive while continuing to support the country.

European Union foreign policy chief Josep Borrell on Monday suggested the way to reduce civilian casualties would to be stop arms supplies to Israel.

“If the international community believes that this is a slaughter, that too many people are being killed, maybe we have to think about the provision of arms,” he told reporters in Brussels.

The State Department’s Miller said he does not believe cutting aid would be “more impactful than the steps Washington has already taken”.

A Dutch appeals court said it had blocked the export of F-35 fighter jets parts to Israel over a “clear risk of violations of international humanitarian law” in Gaza. However, the government said it would appeal.

Britain urged Israel to agree to a truce to free its hostages, while Dutch Prime Minister Mark Rutte on a visit to Jerusalem said he had warned Netanyahu not to advance.

Netanyahu on Friday ordered the military to create a plan to evacuate civilians from Rafah to protect them during the offensive.