Israel has denied Palestinian cabinet ministers detained in the West Bank are to be used as bargaining chips to release a captured Israeli soldier.
The detainees include eight members of the Hamas-led government and 20 MPs. Palestinians called it an act of war.
The Israelis say they suspect them of involvement in terrorism, and are holding them for questioning.
Foreign ministers of the G8 countries meeting in Moscow called on Israel to exercise utmost restraint.
Israeli military units advanced into southern Gaza on Tuesday night as part of efforts to get the soldier, Corporal Gilad Shalit, released.
They have carried out further air strikes in Gaza during the day and shelled open areas to prevent retaliation by militant rocket crews.
Much of Gaza has been left without electricity and running water after a power plant was hit by Israeli missiles on Tuesday.
Israel aircraft also destroyed several bridges, preventing travel between the north and south of the 45km (30-mile) Strip.
The body of a teenage Israeli settler abducted by Palestinian militants on Sunday has now been recovered by Israeli troops near the West Bank town of Ramallah.
'War of terror'
Israel has said it will not negotiate Cpl Shalit's release with his captors, or free Palestinian women and children held in its jails, as the militants demand.
"They are not bargaining chips for the return of the soldier - it was simply an operation against a terrorist organisation," said an Israeli army spokeswoman.
As they called for calm, the G8 foreign ministers were among a number of international bodies to question Israel's move.
"The detention of elected members of the Palestinian government and legislature raises particular concerns," the ministers said in a written declaration.
They also demanded the immediate release of Cpl Gilad - who was seized by Palestinian militants during a raid on an army post outside Gaza on Sunday.
"We are united in demanding that the Israeli soldier be freed as soon as possible," Russian Foreign Minister Sergey Lavrov said at a news conference.
Palestinian negotiator Saeb Erekat accused Israel of "waging an open-ended all-out war against the Palestinian people that aims to topple the Palestinian presidency and the Palestinian government".
Meanwhile Syria condemned an incursion by at least two Israeli war planes into its airspace on Wednesday, flying over the summer residence of President Bashar al-Assad.
Israeli officials accuse the Syrian government of harbouring the political leadership of Hamas, which it blames for the seizing of Cpl Shalit.
The Israeli military detained more than 64 Hamas officials and parliamentarians in overnight raids across the West Bank.
The detained ministers include Finance Minister Omar Abdal Razeq, Social Affairs Minister Fakhri Torokma and Prisoners' Affairs Minister Wasfi Kabha and Deputy Prime Minister and Education Minister Nasser Shair.
Israeli ground forces meanwhile massed at Gaza's northern border, and troops and tanks dug into positions in the south, a day after they moved in.
The Israeli air force staged mock raids over Gaza, causing sonic booms, and dropped leaflets in northern Gaza urging residents to avoid moving in the area because of impending military activity.
Israel aircraft later attacked a car in Gaza City carrying militants from the Islamic Jihad group, Palestinian sources said.
The militants escaped, although one was lightly injured in the blast, witnesses said.
Nervous civilians stockpiled batteries and candles, as well as food and water.
In southern Gaza, where the Rafah crossing with Egypt has been closed since Cpl Gilad's capture, militants blew a large hole in the border wall.
Palestinian security forces stopped people from pushing through the gap by forming a human cordon, and a curfew was imposed.