Israeli leaders warned Friday that the army may unleash a “holocaust” on the Gaza Strip if Islamists there do not end their daily barrages of rockets, the Times of London reports.

"The more Qassam fire intensifies and the rockets reach a longer range, they will bring upon themselves a bigger holocaust because we will use all our might to defend ourselves," Israeli Deputy Defense Minister Matan Vilnai said.

Israel was forced to activate a rocket warning system in the Gaza Strip to protect Ashkelon, a city of 120,000 people, from Palestinian rockets.

Vilnai’s deployment of the word appeared to show Israel’s growing frustration that Hamas and other militant groups in Gaza refuse to curb their attacks, despite heavy tolls inflicted in Israeli air strikes and tank raids, the Times of London reports.

Ashkelon was hit by several Grad rockets fired from Gaza on Thursday, a sign of the widening scope of violence between Israel and Hamas militants in Gaza. One hit an apartment building, slicing through the roof and three floors below, and another landed near a school, wounding a 17-year-old girl.

Located 11 miles from Gaza, Ashkelon had been sporadically targeted in the past but never suffered direct hits or significant damage.

In Gaza, thousands took to the streets on Friday in funerals for the dead of the past days. Ismail Haniyeh, the head of the Hamas government in Gaza, addressed a crowd of around 2,000 Hamas supporters at Friday prayers, his first public address after nearly a month and a half during which he and other Hamas officials have largely remained out of sight because of fears Israel could assassinate them.

"You are mistaken if you thought that targeting buildings, ministries and police stations is going to stop our work," Haniyeh said, directing his comments at Israel. "We will work under trees, in tents and in the streets."

"It will be sad, and difficult, but we have no other choice," Vilnai said Friday, referring to the large-scale military operation he said Israel was preparing to bring a halt to the rocket fire.

"We're getting close to using our full strength. Until now, we've used a small percentage of the army's power because of the nature of the territory," Vilnai told Army Radio on Friday.

Israel does not intend to launch a major ground offensive in the next week or two, partly because the military prefers to wait for better weather, defense officials said. But the army has now completed its preparations and informed the government it's ready to move immediately when the order is given, the officials said, speaking on customary condition of anonymity.

After Thursday's rocket attacks on Ashkelon, Israel activated its "Code Red" rocket warning system there. The system picks up incoming rockets and sounds an alarm in the target area, giving residents time — a few dozen seconds, in Ashkelon's case — to scramble for cover.

Until now, the Palestinian rocket squads have largely targeted Sderot, a small town near Gaza. Ashkelon, a major population center only 25 miles from Israel's heart in Tel Aviv, was caught unprepared, its mayor said Friday.

"It's a city of 120,000 people, with large facilities — a huge soccer stadium, and a basketball stadium, and a beach. No one is ready for this," Roni Mehatzri told Israel Radio.

On Friday, dozens of soldiers in orange berets from the Israeli military's Home Front Command arrived in Ashkelon and hung posters around the city instructing residents on what to do in case of a rocket attack.

Despite past rocket hits in Ashkelon, Israel hesitated to activate the "Code Red" system there because officials didn't want to send 120,000 people running for shelter every time a rocket was launched in the direction of the city.

The army is now considering installing more radars near Ashkelon so that the system will be able to better analyze the course of an incoming rocket and warn only the residents of the target neighborhood, rather than the whole city, defense officials said.

The barrage of Iranian-made Grads directed at Ashkelon on Thursday came on the second day of a spike in violence in Gaza. On Wednesday morning, Israel killed five Hamas militants, including two rocket masterminds, in an airstrike on a minivan. Later in the day, a Palestinian rocket killed an Israeli civilian, a 47-year-old father of four, in the town of Sderot.

Hamas, an Islamic group with close ties to Iran, has ruled Gaza since coming to power in a violent takeover there in June, 2006.

A Palestinian civilian wounded in an airstrike on Thursday died Friday, Palestinian medical officials said.Since Wednesday, 32 Palestinians have been killed by Israeli missile strikes, including 15 civilians, among them eight children, according to Palestinian officials. The youngest was a 6-month-old boy, Mohammed al-Borai, whose funeral was held Thursday.

The army said it was targeting rocket squads, and blamed militants for operating in populated areas. AP photos showed rockets being launched from densely populated areas in northern Gaza.

Israeli troops and tanks were in action Friday in northern Gaza, according to Palestinian witnesses and the military, and Israeli aircraft continued to pummel targets in the coastal territory. One attack near the town of Jebalya wounded five people, including two children and their grandmother, according to Dr. Moaiya Hassanain of Gaza's Health Ministry. The military said it carried out strikes targeting areas used by rocket squads.

After prayers, thousands marched in towns across Gaza waving the flags of Hamas and other militant groups. Some children at the protests wore white clothes stained with red paint to resemble blood.

Militants fired several rockets into Israel on Friday morning, the military said. One scored a direct hit on a house in Sderot, lightly wounding one person, according to the Israeli rescue service Magen David Adom.

Egypt's powerful intelligence chief called off a visit to Israel next week because of the spike in violence, an Israeli defense official said Friday. Omar Suleiman, who often serves as an envoy for Egyptian President Hosni Mubarak, was set to meet with Israeli leaders, including Prime Minister Ehud Olmert, to discuss border issues and an Israeli soldier held by Hamas militants in Gaza.

Egyptian officials were not immediately available for comment.

Click here to read more on this story from the Times of London.

The Associated Press contributed to this report.