Israel pounds Gaza after deadly Hamas raid as conflict threatens to spiral

JERUSALEM/GAZA, Oct 8 (Reuters) - Israel battered Palestinians in Gaza on Sunday after suffering its bloodiest day in decades when Hamas fighters rampaged through Israeli towns, with hundreds killed on both sides and spiralling violence threatening a major new Middle East war.

In a sign the conflict could spread beyond blockaded Gaza, Israel and Lebanon's Iran-backed Hezbollah militia exchanged artillery and rocket fire, while in Alexandria, two Israeli tourists were shot dead along with their Egyptian guide.

Israeli air strikes hit housing blocks, tunnels, a mosque and homes of Hamas officials in Gaza, killing more than 300 people, including 20 children, as Prime Minister Benjamin Netanyahu vowed "mighty vengeance for this wicked day".

In southern Israel, Hamas gunmen were still fighting Israeli security forces 24 hours after a surprise, multi-pronged assault of rocket barrages and gunmen who attacked army bases and towns, killing at least 600 people, according to Israeli TV, and abducting dozens more.