Israel has threatened to invade Gaza's Rafah by the start of Ramadan if Hamas does not return the remaining hostages in a dark ultimatum condemned by international observers.

The United States and other governments, as well as the United Nations, have issued increasingly urgent appeals to Israel to call off its planned offensive on Rafah, where three-quarters of the displaced Palestinian population has fled.

Some 1.2 million people are now taking shelter in sprawling tent encampments without access to adequate food, water or medicine in the city that used to be home to just 250,000. 

But the Israeli government says the city on the Egypt border is the last remaining stronghold in Gaza of the Palestinian militant group Hamas.

'The world must know, and Hamas leaders must know - if by Ramadan our hostages are not home, the fighting will continue everywhere, including the Rafah area,' Benny Gantz, a retired military chief of staff, told a conference of American Jewish leaders in Jerusalem on Sunday.

'Hamas has a choice. They can surrender, release the hostages and the civilians of Gaza can celebrate the feast of Ramadan,' added Gantz, a member of the three-person war cabinet.

Ramadan, the Muslim holy month, is expected to begin around March 10.

Gantz said the offensive will be carried out in coordination with American and Egyptian partners to 'minimise the civilian casualties as much as possible'.

But where Palestinians can go after four months of war have flattened vast swathes of the Strip remains unclear.

'There's no safe place. Even the hospital is not safe,' Ahmad Mohammed Aburizq told reporters from the morgue of a Rafah hospital where mourners gathered around a loved one wrapped in a white body bag.