By Nidal al-Mughrabi

GAZA, Jan 3 (Reuters) - The Israeli air force is dropping thousands of leaflets over Gaza warning people to leave their homes before targeted bombing raids.

In the past few days of their air offensive on Gaza, Israeli forces have zeroed in on the houses Hamas leaders and militants.

The polite warning from the Israel Defence Forces (IDF) is addressed to "residents of the area".

"Because of the terrorist actions carried by some terrorist figures out of the area of residence against the state of Israel, the IDF was forced to immediately respond and act inside your area of residence," it says.

"For your own safety you are required to leave the area immediately."

As well as the leaflets, the Israeli military has called local numbers with an automated warning message giving residents several minutes' grace to flee.

As new air strikes on Saturday boomed over Gaza, leaflets dropped over the area scared many residents, witnesses said.

Many families have fled, mostly to friends and relatives in what they hope are safer districts, but some remained defiant.

"We are staying, we are not leaving. How would anyone leave their own house?," said Umm Kamell, a mother of 11 baking bread at home.

"We are afraid, of course we are. They said they bombed the military people, this is a lie. They are bombing the civilians."

Israel says it is doing it all can to avoid civilian casualties but that some are inevitable as militants from the Islamist group Hamas which controls Gaza use homes, mosques and schools as bases for rocket attacks on Israel.

So far, it has killed at least two senior Hamas leaders. On Friday, Nizar Rayan was picked off but four of his wives and 11 children were also killed after refusing to evacuate. The house was used to store arms, the Israeli military said.

"We are living in horror. My grandchildren escape into my arms," said another women helping Umm Kamell bake the bread.

"We will never evacuate our houses. We are tired and we only have God on our side."

TAKING A RISK

The main streets of Gaza City were almost empty on Saturday, the start of the second week of an offensive in which about 430 Palestinians have been killed and 2,000 wounded, at least a quarter of them civilians, according to the United Nations.

Israel launched the offensive on Dec. 27 with the stated aim of stopping Hamas rocket attacks on Israeli towns from Gaza that have killed four people since then..

Only those Gazans who needed to go out for urgent business dared to leave their houses. People crossing from one side of the street to the other knew they were taking a risk.

"You never know, this time it is merciless," said an old man carrying a plastic bag of potatoes. "The world is closing its eyes to the massacres here and only God can end this war."

Some residents of Gaza's Khan Younis refugee camp said they had no water for five days and no electricity. The refugees were dependent on U.N. food aid but distribution has stopped, one woman said.

Sixty-five-year-old Mohammed Hassanien was among a group of elderly men sitting outside their houses defiant of the air strikes.

Asked if he was afraid, he said: "I am sitting here under the bombardment, I am not afraid of the Jews, whether they threaten or not. I only fear God."

"Whatever happens, let somebody die in his home."

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