GAZA CITY, Gaza Strip (AP) — A Gaza cease-fire quickly unraveled on Friday as violence erupted in and around a southern town in the war-ravaged strip, with at least 40 Palestinians killed in Israeli shelling while the military said two soldiers were killed and an infantry officer was feared captured during fighting there.

Israel and Hamas accused each other of breaking the cease-fire, which had been announced by the U.S. and the U.N. and took effect at 8:00 a.m. Friday. The fighting broke out less than two hours later.

The breakdown of the cease-fire and the apparent capture of the Israeli soldier set the stage for a major escalation of the 25-day-old conflict, which has already devastated large swaths of the impoverished coastal area.

The White House condemned the apparent capture of the soldier near the southern Gaza town of Rafah, describing it as an "absolutely outrageous" action by Hamas. Deputy National Security Adviser Tony Blinken said the soldier must be released immediately.

Israeli Prime Minister Benjamin Netanyahu, meanwhile, told U.S. Secretary of State John Kerry in a telephone conversation that Palestinian militants had "unilaterally and grossly" violated the ceasefire and attacked Israeli soldiers after 9 a.m.

"Israel will take all necessary steps against those who call for our destruction and perpetrate terrorism against our citizens," Netanyahu told Kerry, according to a statement from the prime minister's office.

Mark Regev, Netanyahu's spokesman, said Hamas had "yet again thrown away a chance for a humanitarian relief for the people of Gaza, by deliberately violating this ceasefire."

Moussa Abu Marzouk, Hamas' deputy leader, told Al-Arabiya news channel from Cairo that the movement's military wing carried no military operations after 8:00, when the truce came into force.

If confirmed, the capture of the soldier could dramatically change the trajectory of the conflict. Any cease-fire efforts would likely be put on hold and Israel might instead expand its ground operation. Israel has in the past gone to great lengths to return captured soldiers. In 2011, it traded hundreds of Palestinian prisoners for an Israeli soldier who had been captured by Hamas-allied militants in 2006.

Israel had already said it would continue demolishing cross-border tunnels behind its own defensive lines during the cease-fire, and the military said its troops were attacked during one such operation.

Gunmen emerged from one or more tunnel openings and opened fire, with at least one of the fighters detonating an explosives vest, Israeli army spokesman Lt. Col. Peter Lerner said.

He said 2nd Lt. Hadar Goldin, a 23-year-old from the central town of Kfar Saba, was apparently captured during the ensuing mayhem and taken back into Gaza through a tunnel, while another two soldiers were killed.

"We suspect that he has been kidnapped," Lerner said, adding that the attack took place an hour and a half after the cease-fire began.

A Hamas spokesman, Fawzi Barhoum, would not confirm or deny Goldin's capture, saying that it was being used — along with news that two Israeli soldiers were killed in the area of Rafah in the south of the Gaza Strip — as a cover for a "massacre" in Rafah that followed the apparent capture.

The Israeli military said the heavy shelling in Rafah was part of operational and intelligence activity designed to locate Goldin.

The shelling sent families fleeing from apartment blocks as pillars of smoke caused by the shelling rose from them. One woman carrying two children rushed toward a parked car. "Quickly, open the car door!" she yelled to a man standing nearby.

Ambulances ferried the wounded to Rafah's al-Najar hospital, where bloodied bodies on stretchers were carried inside and family members frantically searched for loved ones. Many of the wounded were children, their clothes stained with blood. In one hospital room, four children were treated on a single bed. Others were being examined on the floor.

The shelling killed at least 35 Palestinians and wounded 250 in Rafah, Gaza health official Ashraf al-Kidra said. He said the death toll could rise as rescue workers search for people buried under the rubble. He did not say whether those killed were civilians or militants.

On July 8, Israel launched an aerial campaign against Gaza aimed at halting Palestinian rocket fire and later sent in ground troops to target launch sites and tunnels used by Hamas to carry out attacks inside Israel.

The war has since killed at least 1,500 Palestinians, mainly civilians, according to Palestinian officials. Israel says 63 of its soldiers and three civilians in Israel have been killed.

Four brief humanitarian cease-fires had been announced since the conflict began, but each broke within a few hours. The military said Gaza militants had fired eight rockets and mortars at Israel since the 8 a.m. start of cease-fire Friday, one of which was intercepted.

The latest cease-fire, announced by U.S. Secretary of State John Kerry and U.N. chief Ban Ki-moon, was intended to be the first step toward a lasting truce, with Egypt inviting Israeli and Palestinian delegations to Cairo for talks.

Despite the collapse of the latest truce, an Egyptian government official said Egypt had not canceled its invitation for Palestinians and Israelis to hold talks in Cairo. "Invites were delivered already to the delegations," said the official, who spoke on condition of anonymity because he wasn't authorized to speak to the press.

Soon after the cease-fire started, Gaza's residents took advantage of the lull to return to their homes, many of which had been destroyed in the fighting.

In the heavily bombarded Gaza district of Shijaiyah, less than 1.6 kilometers (a mile) from the Israeli border, residents surveyed the damage.

Bassem Abul Qumbus found his three-story home — in which he had invested tens of thousands of dollars — shattered. Shells had punched a hole in the ceiling of one bedroom and a wall had collapsed into the kitchen.

"The work of all those years is gone," he said, as he struggled to salvage flour from bags that had been torn apart by shrapnel.

In the southern town of Khan Younis, residents searched for bodies in the rubble of their homes as rescuers and volunteers carried away corpses, some charred, on makeshift stretchers.

Nidal Abu Rjeila found the body of his disabled sister on the ground on the side of the road, her wheelchair flipped upside down. He said her body had been there for five days.

"I tried to reach human rights groups and the Red Cross, but no one was answering me," he said as he lay down by his sister's body, overcome by grief.

Israel says it has tried to spare civilians, including by warning people ahead of military strikes, and has said Hamas endangers Gazans by firing rockets from residential areas.

Palestinian militants have fired hundreds of rockets into Israel since the start of the conflict, extending their reach to major cities but causing very few casualties, in part because Israel's Iron Dome defense system has intercepted many of the projectiles.

Hamas has vowed to keep fighting until Israel and Egypt lift a blockade of Gaza imposed after the Islamic militant group seized power there in 2007, which has devastated the local economy.

Ahead of the cease-fire, Gaza police reported heavy Israeli tank shelling in the northern and eastern part of the strip, and loud exchange of fire could be heard across Gaza City. Tank shells slammed into the city itself, setting homes and shops ablaze.

Hamas fighters hit an Israeli tank with an anti-tank missile, Gaza police said. The militants then attacked Israeli troops who came to evacuate the tank crew. Clashes continued into the early morning hours, police said.

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Estrin reported from Jerusalem. Associated Press correspondents Karin Laub in Gaza City and Yousur Alhlou in Jerusalem contributed to this report.