* Israeli leader sees prolonged conflict
* Palestinians keep up rocket fire on Israel
* No sign of warring sides returning soon to truce talks (Adds Netanyahu comments, UNRWA official, updates casualties)
By Nidal al-Mughrabi and Jeffrey Heller
GAZA/JERUSALEM, Aug 24 (Reuters) - Prime Minister Benjamin Netanyahu warned Palestinian civilians on Sunday to leave immediately any site where militants are operating, one day after Israel took the Gaza war to a new level by flattening a 13-storey apartment tower.
Israeli aircraft first fired a non-explosive rocket at the building, a sign to residents to get out, before attacking it on Saturday. Seventeen people were wounded in the strike on the structure, which Israel said had housed a Hamas command centre.
"I call on the inhabitants of Gaza to evacuate immediately from every site from which Hamas is carrying out terrorist activity. Every one of these places is a target for us," Netanyahu said in public remarks at a cabinet meeting.
With no end in sight to fighting now in its seventh week, Netanyahu's tough talk could indicate a move towards bolder strikes in densely populated neighbourhoods, even at the risk of raising more international alarm.
Thousands of homes have been destroyed or damaged in the conflict. Nearly 500,000 people have been displaced in the territory of 1.8 million where Palestinians, citing Israeli attacks that have hit schools and mosques, say no place is safe.
Israel has said Hamas bears responsibility for civilian casualties because it operates among non-combatants. The group, it said, uses schools and mosques to store weapons and as launching sites for cross-border rocket attacks.
Palestinian health officials say 2,108 people, most of them civilians and more than 400 of them children, have been killed in the Gaza Strip since July 8, when Israel launched an offensive with the declared aim of ending Palestinian rocket fire into its territory.
Sixty-four Israeli soldiers and four civilians in Israel have been killed.
WAR OF ATTRITION
Israel launched more air strikes on Gaza on Sunday, killing at least six Palestinians, medical officials said.
Palestinian militants kept up their rocket fire in what has become a war of attrition that has defied attempts by regional power Egypt to broker a durable truce.
The bombing on Saturday of Al Zafer Tower in Gaza City marked the first time in the Gaza war that Israel had brought down so tall a structure. It had housed 44 families.
It launched the attack a day after a mortar bomb killed a four-year-old Israeli boy. Israel's president attended his funeral on Sunday near the Gaza border.
Egypt called on Israel and the Palestinians on Saturday to halt hostilities and return to talks. But there was no sign that negotiations, last held before a ceasefire collapsed on Tuesday, would resume any time soon.
The start of the school year has already been delayed indefinitely by the Education Ministry in the Gaza Strip, and Netanyahu said on Sunday that Israelis should be prepared for the war to continue after classes begin on Sept. 1.
At one U.N.-run school in Gaza where Palestinian families have been sheltering, children chanting "glory and eternity to our martyrs" stood in line for the national anthem, but no classes were held.
Scott Anderson, Deputy Director of Gaza operations for the United Nations Relief and Works Agency, said although school has been cancelled, instruction could be provided by other means.
"It is very important that we use our satellite channel, our Internet active learning program, the computer labs and the self-help material - all these lessons we learnt in Syria and they have proved to be very successful there," he said, referring to remote schooling during Syria's civil war.
Hamas has said it will not stop fighting until the Israeli-Egyptian blockade on Gaza is lifted. Both Israel and Egypt view Hamas as a security threat and are demanding guarantees that weapons will not enter the economically crippled enclave.
The Cairo talks had aimed to secure a lasting deal to allow reconstruction aid to flow into Gaza. The current conflict is the longest and deadliest between the Palestinians and Israel since the second Intifada (Palestinian uprising) a decade ago.
Israel also faced rocket fire from the north on Saturday.
Two missiles launched from Lebanon struck Israel's Galilee. Lebanese and Israeli sources said it was not initially clear who was behind the attack, which caused no casualties or damage.
At least five rockets fired from Syria landed at various locations on the Israeli-occupied Golan Heights, the Israeli army said. All fell in open areas. It was also not immediately known who launched them.
Late on Saturday, an Israeli air strike destroyed a commercial centre in the southern Gaza town of Rafah and three people were hurt, local medical staff said. (Additional reporting by Maayan Lubell and Ori Lewis in Jerusalem and Sylvia Westall in Beirut; Writing by Jeffrey Heller; Editing by Gareth Jones)