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The Situation Room

Tunnels Revealed; Interview with Mark Regev; Flares Illuminate Skies Over Gaza; Interview with Mustafa Barghouti; Interview with Jen Psaki; Large Parts of Gaza City Without Power

Aired July 28, 2014 - 17:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

WOLF BLITZER, HOST: Happening now, a SITUATION ROOM special report, breaking news.

Escalating war -- fighting between Israel and Hamas intensifies, bringing new bloodshed to both sides, including at least eight children killed in Gaza.

Hamas tunnels revealed -- an exclusive look inside one of the tunnels Israel has vowed to destroy used by militants to try to infiltrate Israeli territory.

Crash site block -- heavy fighting in Ukraine keeps investigators from reaching the Malaysian Flight 17 debris field, as government forces and rebels battle for control.

We want to welcome our viewers in the United States and around the world.

I'm Wolf Blitzer in Jerusalem.

You're in THE SITUATION ROOM.

ANNOUNCER: This is CNN breaking news.

BLITZER: And we're following the breaking news. Intense fighting going on between Israel and Hamas on this day, reaching deadly new levels. Ten people, including eight children, were killed in a strike in Gaza for which Israel and Hamas are trading blame. And a deadly day for Israeli, as well. It's reporting four more Israeli soldiers killed by mortar fire near the Gaza border and another Israeli soldier killed inside Gaza.

We're going to get more from our reporters on the ground in Southern Israel, as well as in Gaza, in just a moment.

But first, earlier today, CNN was the only U.S. television network to get a look inside one of the tunnels used by Hamas to infiltrate Israel. This is an exclusive report. No other American television network can bring you.

(BEGIN VIDEOTAPE)

BLITZER (voice-over): This is priority number one for the Israel defense forces -- finding and destroying dozens of Hamas tunnels, underground escape hatches from Gaza used to infiltrate Israel and launch attacks.

I went to the frontline near the Gaza border to see one of those tunnels with IDF lieutenant colonel, Oshik Azouli.

Israeli forces have uncovered more than 30 tunnels in this area.

BLITZER (on camera): All right, let's go in.

(voice-over): This tunnel is just under two miles long and about 45 feet below ground. It begins in the southern Gazan city of Khan Yunis and ends here, near an Israel kibbutz along the boarder with Gaza.

(on camera): Let's go a little bit further in. In this tunnel, I guess the tunnel was built for relatively short people because if you stand up, you're going to hit your hard.

I'm not that tall. But you see, it's pretty secure, this concrete. They spent a lot of effort building this tunnel.

(voice-over): Hamas boasts about its network of tunnels, posting this video, allegedly showing mass militants entering Israel, before being targeted by an Israeli air strike. This video was released by the IDF.

And Hamas never got to use the tunnel I visited.

(on camera): This tunnel, the Israelis found it. They destroyed a big chunk of it back there. They've kept this part.

(voice-over): Lieutenant Colonel Azouli believes it took Hamas about two years to build this tunnel, with concrete and other supplies that he says came from Israel.

(on camera): You say this concrete came from Israel?

How do you know it came from Israel?

AZOULI: We found the bags.

BLITZER: The bags. So basically, the concrete was the provided by Israel to Palestinians in Gaza to build schools, hospitals, stores, apartments, but they used it, would you say, to build this tunnel?

AZOULI: Yes.

BLITZER (voice-over): Hamas has other tunnels that lead into Egyptian territory used to smuggle weapons and supplies into Gaza. But the IDF says the underground passages into Israel have only one purpose.

(on camera): From what you know, what was the purpose of this tunnel?

AZOULI: I think soldiers, they want to attack regular people, children, women, men.

BLITZER: So they wanted to go in, attack, kill Israelis.

AZOULI: Yes.

BLITZER: But also kidnap Israelis.

AZOULI: Yes.

BLITZER: That was one of the rationales that Israelis have suggested was one of the purposes of these tunnels?

AZOULI: Yes.

(END VIDEO TAPE)

BLITZER: So the tunnels are still there. The Israelis say that's priority number one, doing away with these tunnels.

Let's get some more now.

Mark Regev is the spokesman for the prime minister of Israel, Benjamin Netanyahu.

Mark, thanks very much for joining us.

MARK REGEV, SPOKESMAN, ISRAELI PRIME MINISTER BENJAMIN NETANYAHU my pleasure.

BLITZER: All right, an immediate cease-fire for humanitarian purposes -- where does that stand right now?

REGEV: We've accepted humanitarian cease-fire after humanitarian cease-fire. I think all in all, we have accepted three or four. And every time Hamas either rejects it or violates the terms.

Even today, we started the day giving the IDF orders to act against those tunnels for obvious reasons, and to be defend themselves. And we thought this would maybe contribute to a de-escalation.

What happened in the end?

We had one of our most difficult days. As Prime Minister Netanyahu said, we had rockets overshooting Tel Aviv, hitting the Haifa Bay Area in the northern part of our country. We had terrorists coming into the country through these tunnels trying to kill people. And we had mortar shells on our border killing, as you know, Israeli soldiers.

BLITZER: Are those Hamas infiltrators who got into Israel today and had an exchange with Israeli troops, are they still at large?

REGEV: I understand they've all been rounded up or killed, or gone back to the other side. But that just shows you -- and you were there today -- the danger that those tunnels pose.

And I think it's fair to say, Wolf, they are a strategic danger. You know, the people in Southern Israel live in this fear that there's a knock at the door and who will be on the other side of the door?

A group of terrorists with automatic weapons explosives and rocket propelled grenades. The idea that they just pop out of the ground on our side of the frontier no murder and kidnap, that's unacceptable.

And that's why we're working so hard to destroy all these tunnels.

BLITZER: There seems to be a real rift or strain between the Obama administration the president of the United States, and the prime minister of Israel right now over the terms for a cease-fire. You read the Israeli media, the Israeli press, you see some of the stuff that's been written about the secretary of State, John Kerry, which is pretty awful right now.

What's going on?

REGEV: Well, first of all, unlike most of our neighbors, the Israeli government does not control our press. And you have to ask journalists why they write these.

BLITZER: But they're getting this from...

REGEV: No, they're not.

BLITZER: -- Israeli officials.

REGEV: They're not getting it from us. And let's be clear here, we and the United States have a common goal here. We want to come out of this in a way that we don't have the to revisit the conflict in another six months. Then nothing is achieved. We want to come out of this with a sustained period of peace and quiet.

And to get that, we have to also start dealing with an issue that hasn't been on the front burner, but we have to talk about, and that's demilitarizing. Because once this is over and most of Hamas' rockets have been destroyed and most of those terror tunnels have been destroyed, how do we prevent Hamas from rebuilding its terrorist military machine?

And that can only be done through concerted international action, international cooperation.

We have to act to bring about a demilitarized Gaza Strip.

BLITZER: Well, how far apart is Israel right now from the U.S., Prime Minister Netanyahu, and the Obama administration, when it comes to the terms for a cease-fire?

REGEV: Well, we heard both from President Obama and today from Secretary Kerry. They support the principle of demilitarization, because that's crucial. I mean, once again, we don't want to go through this sort of crisis all again six months from now. And we have to make sure that the Iranians and the Qataris and the others don't send rockets to Hamas, that they -- we seal off the Gaza Strip so it won't get that sort of weapons.

We have to make sure that money that is donated to support the people of Gaza goes to the people of Gaza and isn't siphoned off to support this Hamas military machine. That's going to be difficult. It's not going to be easy. Hamas is not going to voluntarily give up its terrorist military machine. But, we, through concerted international action, must make it happen.

BLITZER: So it looks like the fighting, at least for the time being, is going on?

REGEV: You know, we tried to de-escalate today. We really made a sincere effort. And, in the end, it blew up in our face, with Hamas launching attack after attack.

Israel is ready to de-escalate.

The question is, is Hamas?

BLITZER: Mark Lerner, the spokesman for the prime minister of Israel -- Mark Lerner -- Mark Regev, the spokesman for the prime minister of Israel.

Thanks very much for joining us.

REGEV: My pleasure.

BLITZER: Peter Lerner, the spokesman for the IDF...

REGEV: My colleague.

BLITZER: -- will join us in our next hour.

Thanks very much for joining us.

I'll also speak up next with a member of the Palestinian parliament, Dr. Mustafa Barghouti.

He's standing by live in Ramallah. We'll get his take on what's going on, a very different, I am sure.

This is a SITUATION ROOM special report.

(COMMERCIAL BREAK)

BLITZER: You're looking at live pictures coming in from Gaza right now. It's intense. We're following the fighting between Israel and Hamas, and it's reaching deadly new levels. Today, 10 people, including eight children, were killed in a strike in Gaza for which Israel and Hamas are blaming each other.

Let's go to CNN's Karl Penhaul.

He's on the scene for us in Gaza City -- first of all, Karl, these live pictures we're seeing right now, what is going on?

KARL PENHAUL, CNN CORRESPONDENT: Now, Wolf -- now, Wolf. I want to show you this picture first. And I apologize for not standing in front of the camera, but this picture right now is about 500 yards from our vantage point in the bureau. This is the closest we have seen action going on for many days now.

What you're seeing there are illumination flares going into part of the residential area around us. This could mean several things.

Often, they'll use those illumination rounds in advance of troop movements and on other occasions, the Israelis will drop these flares before they start to target an objective here.

My guess is that -- an area down there about 500 yards from the bureau has already been targeted in the past few days -- and we may be seeing just preparations to try and target something down there now.

I'll let you know if that happens.

But to bring you up to date what has been going on in Gaza during the course of the afternoon especially, another strike on a residential area in North Central Gaza. This time it was a street, a street packed with adults and with children. They were getting ready to celebrate the end of Ramadan Eid holiday.

According to the Palestinian Health Ministry, 10 people killed, two of them adults, eight of them children.

And as we were standing there in that street, I was checking out the shrapnel field from the explosion. A car was pockmarked with shrapnel. I was able to put my fist right into the hole made by the shrapnel. Now just imagine the kind of effect that that would have had on a human body, much less a child's body.

And as we were waiting there, as well, one of the bodies of one of the children was brought home for the last time so that his mother could say her final farewell.

And for the first time, I thought, you know, enough is enough. We've got to put a human face on this. So I turned to a little girl -- twelve years old, she was -- and said, "Was he a friend?"

And sorry about that. There's sounds of explosions going on behind. I'll bring you the only thing maybe that's going on there.

I turned to this little girl and I said to her, "Was he your friend?"

He says, "Yes, his name was Muhammad (ph)."

I said, "Well, tell me the good things about Muhammad (ph)."

She says, "You know, he was top of his class at math. He said he loved soccer. And he was a fan, a huge fan of the Barcelona soccer team."

BLITZER: Let me -- let me interrupt for a second, Karl. Because I know we've got a delay between you and me via satellite, but tell us -- because I'm hearing the sounds of -- it sounds like those shots in the background. I don't know if that's artillery or if those are strikes, if that's gunfire. What's going on behind you? And I want you to be careful if it's getting too close. PENHAUL: Yes, let us step out of the way again. I'll get our

shooter, Joe Scheffer (ph), to focus on what is going on here. Since explaining a short while earlier, this is an area approximately 500 yards from our vantage point from the Gaza office.

What we're seeing now coming down are illumination rounds once more. The Israeli military use those for several things. It could be to light the way for advanced troop movements. It could also mean that they're trying to illuminate a target, and then artillery will be able to zoom in on this area.

I believe that, if we're going to see anything here, that it could be artillery strikes. We have heard the pounding of artillery strikes through much of the evening during the darkness hours.

Let me just keep quiet. And I just want to show you this picture, quite dramatic, Wolf.

I'm hoping you can hear some of that, Wolf, because not only do we see these illumination flares drifting down, but we're hearing the sound of artillery. I also believe in the mix there, we're also hearing the sound of gunfire. It is unclear to me where that gunfire, I would say, small arms fire. It's not artillery. It's some kind of machine gun, perhaps an assault rifle.

We had no knowledge prior that either the Israeli military would have boots on the ground in this area or that any of the militant factions would have boots on the ground.

But certainly, not too far off, we're hearing the sound of gunfire. We're hearing the pound and echo of artillery there, as well, and all the while, seeing these illumination flares come down.

Just a few moments ago, even some of the smoke from those illumination rounds was drifting into our bureau. That is how close these rounds are.

It's unclear right now what is going on here in terms of what the target may be. In an area where some of those rounds have dropped, about 500 yards away, is a building that was targeted in the early days of this confrontation between Hamas and Israel. We haven't seen it hit since then. Nor have we seen any rocket fire going up from there. We don't believe that that area is a launch point.

But again, something we've got to keep our eyes on off there in the distance, as well. More illumination rounds going down, and all the while, hearing the sound of artillery and gunfire. Let me just let you listen in. I'm going to keep quiet.

BLITZER: Karl, I want you to stand by. Stand by over there. I want to keep that shot up for our viewers in the United States and around the world.

I want to bring in for some analysis Dr. Mustafa Barghouti. He's a member of the Palestinian parliament, founder of the Palestinian National Initiative. He's joining us from Ramallah. Dr. Barghouti, I don't know if you can see these pictures, but you can

certainly hear the shots, these flares that are over Gaza City right now. It just sort of underscores the need for a cease-fire, a realistic cease-fire. Is that doable, do you believe, Dr. Barghouti, right now or is that out of the question?

DR. MUSTAFA BARGHOUTI, MEMBER OF PALESTINIAN PARLIAMENT: Absolutely it is doable. But it all depends on Mr. Netanyahu, the prime minister of Israel who announced today that he insists to proceed with his military operation. He's even expanding it.

And he is dragging the whole area, the whole region into a disaster. He's dragging his soldiers to be killed. And he's dragging the Palestinians into a massacre.

So far, 1,085 Palestinians have been killed. As you know 90 percent of them are civilians, children, women. Today, eight children were playing on the beach thinking that there is some kind of an cease fire. And then they were bombarded by Israel and killed instantly. We're talking about 6,470 people injured. Again, mostly they are civilians.

More than 20,000 homes have been destroyed. And whole neighborhoods are now threatened to be completely eliminated. I mean, imagine a situation where the people of Manhattan would be told, "You have to evacuate your houses within an hour." And if they don't, they will be killed. And if they do, they will -- all their houses will be instantly destroyed by the Israeli artillery.

This is unacceptable. What's happening is way beyond a massacre. It's almost like an act of genocide. And this has to stop.

BLITZER: Let me -- let me just interrupt for a moment, Doctor -- Dr. Barghouti, because you know the Israelis did accept some cease-fires. Hamas rejected the cease-fires, kept launching hundreds and now a couple thousand rockets and missiles into Israel. The Israelis and most of the rest of the world, a lot of the world say the Israelis have the right to protect themselves from the launching of these rockets and missiles.

Do you believe the Israelis have a point when they say no country would allow rockets and missiles to be fired in without responding?

BARGHOUTI: Well, there are two problems with this narrative. The first problem is that everybody talks about Israel's right to defend itself. But nobody speaks about the Palestinian right to defend themselves, although most of the victims are falling on the Palestinian side and although Israel is occupying us and oppressing us since decades. That's one point.

The second point, this claim that Israel accepted a cease-fire is not true. Israel prevented passing a resolution by the United Nations through the United States that would have imposed a cease-fire by the Security Council. And then they claimed they accepted an Egyptian proposal, but this was never tested. And now that there is a serious proposal on the table to have a cease- fire, Netanyahu is saying, "No, I want to proceed with this operation. I want to expand it." And he's talking about demilitarizing Gaza, knowing very well that this is an impossible mission, unless there is a peaceful solution that solves the whole problem and ends the occupation and the system of apartheid that Israel has created.

So in my opinion, the people have to be very careful about adopting the Israeli narrative which is misleading them.

BLITZER: What about the tunnels? Because the Israelis make the point -- I was in one of those tunnels earlier today -- that why would Hamas be spending all this time and effort and money building these underground tunnels that go from Gaza into Israel? What was the point? Why did Hamas do this? Do you have a good understanding what their rationale was?

BARGHOUTI: Of course. Because Gaza was invaded by Israel three times. Once in 2006, and once in 2008, and once again in 2012. And in each invasion, hundreds of people were killed. The first invasion 1,400 people were killed. And Hamas developed this tactic of an act of defense so that, if the Israeli army invades Gaza, they will find ways to protect themselves and defend themselves.

You could ask the question why Israel is building such a big army. Why Israel has the most powerful air force in the region and the largest army, fourth largest army in the world. Why Israel has 400 nuclear heads. Because they say they want to defend themselves.

All Hamas is doing is just primitive things. These tunnels are nothing but a primitive way of trying to defend themselves against Israeli invasion. But at the end of the day, this all will not be necessary if there is peace. This all will not be necessary if Israel finally tries -- they've tried so many wars.

One risk they have not tried yet, which is the risk of peace and accepting to end the occupation and allowing Palestinians to have an independent state and get out of Gaza forever rather than be besieging Gaza and the people here making the life so horrible that they have to fight to get their food.

BLITZER: Dr. Mustafa Barghouti, we've got to leave it there, because we see intense activity going on in Gaza right now. We'll continue our conversation in the days to come.

I want to go back to Karl Penhaul in Gaza City right now. Karl, update our viewers. We hear the sounds. We hear the booms. We hear the fire. Do we see the skies over Gaza City? We see those flares there. What's going on?

PENHAUL: Yes, I just want to bring you up to date with this, Wolf. We're hearing several things going on. The first explosions that we're hearing is the sound of the illumination flares as they're fired into the sky. They have an explosive charge in them that then pumps out this bright flare on a small parachute, so that is one of the explosive sounds you're going to be hearing. That is those illumination flares that are also pumping out white smoke into the sky as they come down.

And then you'll hear the thud of heavier explosions. Those are artillery rounds being fired out. We don't know where they are landing right now. We can't see the that from our vantage point. It's not clear either whether those artillery rounds are being fired from Israeli navy gun boats or if they're being fired from the self- propelled guns closer to Gaza's eastern border with Israel. But certainly the sound of heavy activity.

Quite often those illumination rounds will be fired up, possibly to guide troop and armored movements in nighttime hours, if there's a need to get more prevision about where the target is. Sometimes those flares may be dropped onto a target to mark the target so that then artillery can pound it.

It must be said, however, that there's a lot of illumination flares dropping on this part of Gaza, many more than we have seen at any time in the past three weeks. We are hearing the sound of artillery rounds. But in this area in front of us, still not seeing any real results of that artillery action. That is something that could follow in the next few moments.

But let me keep quiet. You've just seen that perhaps on your screens. You've seen a portion of this area of Gaza City go dark. One or two lights on still in the background. That's some indication that the power has gone out, the power has been cut. As I look towards the ocean, as well, you can see a whole swathe of Gaza City where the power has been cut. And overhead, the smoke, the illumination rounds going in over different parts of the strip, Wolf. It could be a long night.

BLITZER: Certainly looks like that. I'm going to stay -- stay with these pictures, Karl. I'm going to stay with you. Stand by. Remember, be very, very careful as far as what's going on.

I want to bring in Jen Psaki. She's the spokeswoman for the State Department, works with Secretary of State John Kerry.

Hey, Jen, thanks very much for joining us.

JEN PSAKI, SPOKESWOMAN, STATE DEPARTMENT: Hi, Wolf. Thank you.

BLITZER: I know you're back in Washington. You were with the secretary. He was trying to achieve a cease-fire. It didn't work out. What was the problem? What went wrong?

PSAKI: Well, first, Wolf, let me say that there is a long history of mistrust between the parties on the ground. And when the secretary went to the region just a week ago, there was no discussion of a cease-fire. There weren't actual negotiations going on, and the international community had not gathered support for the idea of a cease-fire. So there are some changes and some progress that has been made in that regard.

But this is difficult. We always knew it would be. What we're working on now is short term cease-fires, building on them so we can give time for the parties to negotiate about the bigger -- larger issues.

BLITZER: You know there's a lot of criticism of the secretary of state and, for that matter, the president of the United States but especially John Kerry in Israel right now.

Let me read you an article by an Israeli journalist, Ari Shavit, who wrote this in "Haaretz," one of the newspapers in Israel. He writes this. He writes, "Over the weekend, U.S. Secretary of State John Kerry ruined everything. Very senior officials in Jerusalem described the proposal that Kerry put on the table as a strategic terrorist attack. That's -- those are incredibly powerful words from somebody like Ari Shavit. You've heard the criticism. They say you went too far, the secretary went too far in accepting what Hamas wanted moving away from the original Egyptian proposal. You say what?

PSAKI: I think it's important for everyone to understand what the facts are here. The facts are that the discussion, the informal draft of ideas that the secretary discussed with Prime Minister Netanyahu was based on the Egyptian proposal. The differences were so small, I don't even think you could fill a note card with them. And that was a proposal not only did the Israelis support two weeks ago, but the cabinet endorsed. So I think there's a confusion and frankly a misinformation campaign going on out there about what the discussion is about, what our focus is on, and I think it's important for everybody in Israel to know and the United States that our primary goal here is ending the rocket attacks from Hamas into Israel. That's the secretary's goal. That's why he's working so hard on this, and that's why we've started to really outline the details of what happened last week.

BLITZER: Is it your understanding, Jen, that if there were a cease- fire -- and right now there isn't one, but let's say there is a cease- fire -- Israel would still retain -- would keep its troops in Gaza and would still be able to destroy those tunnels that go from Gaza into Israel during the cease-fire?

PSAKI: Well, Wolf, the purpose of a humanitarian cease-fire, which is what we're calling for now, is, one, to de-escalate the situation, to end the rocket attacks that are going back and forth, and two, to allow for humanitarian assistance, medical supplies, food into Gaza. You've been reporting there for a long time. You see what's happening on the ground.

There are, we understand that the tunnels do pose a legitimate threat to Israel. I can't imagine waking up every day and worrying about the threat of terrorists coming through tunnels. And they're dealing with those. There isn't a technical fix to that. We think they can do that without resuming combat operations. So it essentially freezes some aspects where they are and allows for an opportunity to discuss the bigger issues that are of concern to both sides.

BLITZER: Is it possible, based on what you know -- and you obviously know a lot -- is it possible that the tunnels could be taken out, can be destroyed without combat but through diplomatic means, sort of the way the U.S. and others destroyed Syria's chemical weapons stockpiles, not through combat, not through air strikes but through diplomacy, if you will, international pressure?

PSAKI: Well, Wolf, I think there's an effort that the Israelis have -- has been under way on the tunnels. I don't -- obviously, the entire discussion right now is about a diplomatic process, and certainly any aspect of Israel's presence in Gaza would be a part of that. But I think this is a process that's ongoing. And we do think that they can continue that effort without resorting to combat operations.

BLITZER: The -- and we're showing our viewers live pictures from Gaza right now. You saw those flares just a little while ago. You heard the booms. It's a lot darker now. It looks like some of the electricity must have been taken out in the course of some of the pounding that was going on. You see these pictures. You say as a top U.S. official what?

PSAKI: Well, I think we say that that's why a cease-fire is needed. That's why we need to have a pause in what's happening on the ground. We have great concern about the violence we're seeing, the civilian casualties. We have concern. We don't want to see parents mourning the loss of their child, whether it's a child in Gaza or an Israeli soldier.

I think it's important to remember here that Hamas is using people as human shields in Gaza. They're putting their own people at risk. But we need to see more from both sides in terms of making efforts toward a cease-fire.

BLITZER: Is Israel going too far?

PSAKI: Well, Israel, I think we've long believed and still continue to believe that they have the right to defend themselves. And when you have indiscriminate rocket attacks threatening your people, when you have terrorists coming into tunnels, they have every right to do that. But at the same time, we've been calling for a cease-fire as has the U.N. This is what the secretary is focused on, because the violence has reached a point where it needs to pause, it needs to stop, and we need to find a way to find a diplomatic solution.

BLITZER: Can we expect the secretary of state, Jen, to make it out here to the Middle East anytime soon again?

PSAKI: Well, Wolf, he's always willing to travel, keeps that option open. And he's been closely engaged throughout the course of the weekend. Dozens of calls with officials who are working on these issues on the ground. We're leaving for India tomorrow. That's also an important place, where we have important relationships, but even while he's there, he'll remain engaged on these issues.

BLITZER: And maybe on the way back to Washington from India, you'll stop off here and do what you need to do. Jen Psaki is the spokeswoman for the State Department. Are you traveling with the secretary to India, Jen?

PSAKI: I wouldn't miss it, Wolf.

BLITZER: All right. Be safe over there.

PSAKI: Thank you, Wolf.

BLITZER: Good luck. We'll see what happens. Jen Psaki joining us from the State Department. We're showing you these live pictures. It's been very dramatic what's been going on the last several minutes. You saw Karl Penhaul report the flares that were going off, those presumably were Israeli flares. You still hear the pounding, you still hear the gunfire, the artillery shots going off. It looks, if you compare what the picture looked like a few minutes ago to what it looks like right now, it's a lot darker in certain parts of Gaza right now. In fact, let's go back to Karl Penhaul. It looks, Karl, correct me if I'm wrong, the power has been destroyed for a nice, big chunk of Gaza City right now. Is that what you're seeing? Am I right?

PENHAUL: Well, you are absolutely right. A certain swath of Gaza City is without power. We saw that power go out. The lights right now are being provided courtesy of the Israeli military, because they're dropping illumination rounds down here onto Gaza City. Unclear what targets they may be marking or what troop movements they may be planning.

Just to give you an idea, a little bit of the black humor that the Gazan people are living with during this confrontation. We've just had the end of Ramadan. And during Ramadan, it's traditional to hang a lantern in the home, a lantern with a candle or with a small bulb inside. And the people of Gaza have taken to calling these Israeli illumination rounds their Ramadan lanterns. Of course, it is black humor, because behind those illumination rounds, as we've heard tonight, the sound of artillery thudding, being fired, possibly from Navy gunboats, certainly from some of the artillery pieces ranged there on the eastern border. And that, of course, with it brings destruction. It is a fight now more than three weeks old.

Let me keep quiet. Let me let you listen in and take a look at the scene over Gaza City.

Quite dramatic, the contrast there, Wolf, between dark and light. The light provided by those illumination rounds. And when they fade away, then a lot of the rest of Gaza City in the dark, in the pitch black, because power is out. Unclear whether that power may have been taken down by an air strike or some kind of sabotage. Unclear whether this is just the normal situation in Gaza, when the generators run out of diesel because they can't get enough fuel in to run these generators.

Let me keep quiet again. There's a lot going on, Wolf.

The sound of the closest explosions you're hearing, that is the sound of those illumination flares. They pop up into the sky, and then you hear a small explosive burst. And that is what is tossing out the bright light attached to a parachute. And then in the distance, the deep thudding sound that you're hearing is the sound of artillery. We don't know what they are targeting right now. Also in the last few moments down at street level, for the first time in three weeks of conflict, we have heard somebody with a loud hailer (ph), with a loudspeaker shouting to the people, go inside your homes. Please go inside your homes for your own safety. That is the scene right now over Gaza City, Wolf.

BLITZER: Yes, it looks like major operations under way. Karl, when the Israelis say that Hamas is to blame because they put their rockets, their missiles in these heavily populated areas, and that the Israelis then say they have no choice to destroy these rocket launchers and missiles, even though they are in these populated areas, have you seen evidence of that?

PENHAUL: Several things, Wolf. First of all, the nature of the Gaza Strip. It's an area of land about the size of metropolitan Las Vegas. The borders are closed. Little else to get out. It's densely populated, densely built up. There really is not a lot of open ground. And so the nature of the war here is urban combat. This is an urban guerrilla war. Urban guerrilla war, as we've seen in other parts of the world. And that is what is going on here in Gaza. So inevitably military hardware is close to residential areas. Nowhere in Gaza strip is far from a residential area. We have seen Israeli military gun camp footage showing what the Israeli military indicates are militant firing positions close to residential buildings. We have observed from our vantage points rockets being fired from areas where inevitably there is residential building.

But that is the nature of this landscape. That is the nature of urban warfare. And that is why this is an asymmetrical war. We can't expect Gaza's militants to line up in a big field and fight the Israeli military. The Israeli military, as you well know, one of the most sophisticated in the world. A very large, powerful conventional army. And what we have here is a deeply asymmetrical war, a lopsided war, where one side is on paper much more powerful and the other side -- in this case the Gaza militants -- trying to balance things out by fighting a very different style. And that inevitably is drawing the Israeli military into the densely populated areas of the Gaza strip, and they're trying to get the Israeli military bogged down, fight them on their own turf, and also, quite surprisingly, still using those tunnels that you yourself visited today.

And we heard again today of an infiltration attempt onto Israeli turf. And these are precisely the tunnels that the Israeli military is trying to destroy, and it shows the difficulty of trying to destroy them, Wolf.

BLITZER: Yep. I was there. We're going to show more of those pictures later in THE SITUATION ROOM. Karl, I want you to stand by. Be careful over there. We're going to continue to watch what's happening over Gaza City. We're going to have much more of the breaking news right after this.

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BLITZER: Want to go right back to Gaza City because it's been intense for the past 40 minutes or so, 30 to 40 minutes. Israeli flares over the city. We hear loud booms going off. Sounds like artillery whether coming from land or from the sea. Unclear. But it looks very intense.

We also earlier saw a lot more light in Gaza City. It's a major city. And now whole chunks of Gaza City look like they've lost power. Unclear if they lost power because of Israeli air strikes or naval strikes or artillery pounding or because the generators just went down this time of the night, approaching 1:00 a.m. local time.

Karl Penhaul has been monitoring all of this. He's in Gaza City. He's monitoring it for us.

Karl, tell us what you're hearing or what you're seeing right now.

KARL PENHAUL, CNN INTERNATIONAL CORRESPONDENT: Right now, we're hearing Israeli drones overhead. That's a very distinctive sound. A little bit like a large lawnmower. We can hear those overhead. We're also seeing illumination flares dropping down through the night sky in Gaza. That lighting up much of the area around us.

The area of most activity tonight, the closest we've seen in the last three weeks really only about 500 yards from our bureau from the vantage point where we are at. What we first hear is the sound of artillery shell firing out. And then an explosion up in the air. That is a smaller explosion sending out this illumination flare. And then if you listen carefully, there's the distinctive clank of metal falling onto the street below, and that's the canister of this illumination round as it falls out of the sky and hits the ground.

Now I saw one of those in northeastern Gaza just the other day during that 12-hour ceasefire on Saturday and that if anybody is out on the streets right now, if that canister falls on them or goes through a tin roof, then that could almost certainly do a lot of damage. And possibly for that reason, we've heard a loud speaker possibly from somebody with a loud hailer on the ground or somebody perhaps from one of the mosques calling on citizens to stay inside, stay out of harm's way.

It's not clear why the Israeli military is sending these flares into this part of Gaza City right now. In previous days, I can tell you when they've used those illumination rounds, sometimes it is to light the way so that both troops and their armored units can move into areas and get a good visual on where they're headed and sometimes they drop these illumination rounds to be able to target something, but unclear right now -- Wolf.

BLITZER: Karl, I want you to stand by. We're going to get back to you, we're going to watch what's going on in Gaza City. We're going to get an update from the IDF, from the Israeli Defense Forces. The spokesman, Lieutenant Colonel Peter Lerner, he's going to be joining me shortly. We'll get the IDF version of what's happening in Gaza City.

Much more coming up right after this.

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COSTELLO: Let's get back to the breaking news. Intense activity over Gaza City right now. It looks like Israeli flares illuminating the skies over Gaza City. We hear pounding going on. It sounds like artillery. Karl Penhaul is on the scene.

Is it easing a bit, Karl, or is it as intense now as it was half an hour ago?

PENHAUL: It is difficult to make out exactly what is going on from our vantage point, Wolf. You'll appreciate that we've got a certain vision from where we are. We can't see the hole of the battlefield if you like. Certainly from our point of view what we're hearing is the sound of artillery being fired and then we can hear a shell whizzing overhead because right now the action appears to be going on just 500 yards from our vantage point.

And then when we hear that shell whizzing, we then hear a small explosion and then an illumination flare coming out and drifting down on a parachute. These things are so close now that we can clearly see the parachute allowing the illumination flare to slowly drift to the ground and cast the light over this part of Gaza City.

In many ways it's the only way they're going to get light in Gaza City -- for much of tonight, by the looks of things, because the power is down. I can't tell you why that happens. Maybe an airstrike or some kind of sabotage could have taken the power down in Gaza City. But also just because of the normal conditions in Gaza, they often can't get enough power to fuel their generators here. So that could be the other issue.

It is now clear to me, though, right now, from where we are when we hear other thuds of artillery going out, whether that is more illumination flares being fired or on other parts of the Gaza Strip, or whether that is live artillery then exploding somewhere else. There have been no, of course, bombardments in eastern Gaza, in southern Gaza in the course of today. And we of course in mid afternoon went out to see the aftermath of an explosion in north central Gaza when some kind of explosive fell on a residential street.

No clarity there on what caused that right now because both the warring sides, both Hamas and Israel, are blaming one another for an explosion that occurred in a residential street that killed 10 people, eight of them children -- Wolf.

BLITZER: Karl, I want you stand by. We're going to get a spokesman for the IDF, Lieutenant Colonel Peter Lerner is going to be joining us. We'll get his take on what's going on.

Also coming up, much more anger, a lot more anguish as children and other civilians fall victim to the unending fighting that's going on in Gaza right now between Hamas and Israel.

Plus we're going to go inside one of the Hamas tunnels under the Israeli-Gaza border. Finding and destroying them. That has now become Israel's top military priority.

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BLITZER: Happening now, a SITUATION ROOM special report. Breaking news tonight. New explosions over Gaza, the fighting between Israel and Hamas is raging again. New strikes at a hospital and a refugee camp. Ramping up the death toll and the outrage.

Plus an exclusive look inside a Hamas tunnel. As Israel reveals another underground infiltration by Hamas militants. I'm going to show you why destroying those tunnels has now become Israel's top military priority.