* Israel allows fuel into Gaza during a lull
* U.S. military chief warns instability could spread
* General strike as Palestinians protest (Adds Netanyahu, former Israeli military intelligence chief)
By Nidal al-Mughrabi, Jeffrey Heller and Stephen Farrell
GAZA/JERUSALEM, May 18 (Reuters) - Israel bombarded Gaza with air strikes and Palestinian militants resumed cross-border rocket fire on Tuesday after a brief overnight lull during which the U.N. sent a small fuel convoy into the enclave, where it says 52,000 people are now displaced.
Israeli leaders said they were pressing on with an offensive to destroy the capabilities of the armed factions Hamas and Islamic Jihad, amid calls by the United States and other world powers for an end to the conflict.
Two Thai workers were killed and seven people were wounded in a rocket strike on an Israeli farm just over the Gaza border, police said. Gaza's ruling Hamas Islamist group and Islamic Jihad claimed responsibility.
Rockets were also launched at the cities of Ashdod and Beersheba, further north.
Gaza residents said Israel was keeping up intense air strikes. Witnesses said an Israeli tank shell hit a paint factory in the southern Gaza Strip, setting it on fire.
"We will continue as long as it takes in order to restore calm for all of Israel's citizens," Israeli Prime Minister Benjamin Netanyahu, reaffirming remarks he has made over the past several days, said in a video clip on Twitter.
"One other thing: I'm sure that all of our enemies around us see the price we are exacting for the aggression against us and I am certain that they will have absorbed that lesson," he said, speaking in an air base hangar with a warplane behind him.
Hamas began firing rockets eight days ago in retaliation for what it said were Israeli rights abuses against Palestinians in Jerusalem during the Muslim holy month of Ramadan.
The current hostilities are the most serious between the militant group and Israel in years, and in a departure from previous Gaza conflicts have helped to fuel violence in Israeli cities between Jews and Arabs.
Gaza medical officials say 215 Palestinians have been killed, including 61 children and 36 women, and more than 1,400 wounded. Israeli authorities say 12 people have been killed in Israel, including two children.
Nearly 450 buildings in the Gaza strip have been destroyed or badly damaged, including six hospitals and nine primary care health centres, the United Nations humanitarian agency said. Some 47,000 of the 52,000 displaced had fled to U.N. schools.
Israel said more than 3,450 rockets have been launched at it from Gaza, some falling short and others shot down by its Iron Dome air defences.
On Tuesday, the army said a soldier was slightly injured when a shell was fired after it allowed the fuel convoy into Gaza. It says its forces have killed around 130 Hamas fighters and another 30 from Islamic Jihad.
On Twitter, Netanyahu said Israel's attacks against Gaza militants had "set Hamas back many years" - which some Israeli news commentators took as a possible prelude to a ceasefire within days when he could claim victory.
But Amos Yadlin, a former Israeli military intelligence chief, said the picture was more complicated, citing civil unrest in Israel, mounting protests by Palestinians in the occupied West Bank and a trickle of rocket fire from Lebanon.
"As far as (Hamas) is concerned, what's happening in the West Bank and maybe with (the Lebanese group) Hezbollah and Israel's Arab citizens - this is where it has won," Yadlin said on Channel 12 TV. "In the military game, they've lost."
On a visit to Iceland, U.S. Secretary of State Antony Blinken said Washington had received further information requested from Israel about its destruction of a Gaza high-rise that housed the local offices of the Associated Press and Al Jazeera news organisations.
Blinken gave no details about the information he said came through intelligence channels about Saturday's attack.
Israel has said publicly a Hamas intelligence office had been situated in the building, whose occupants were warned by the Israeli military in advance to evacuate.
Calling Netanyahu on Monday night, U.S. President Joe Biden said Israel had the right to defend itself against indiscriminate rocket attacks but encouraged it to make every effort to protect civilians, the White House said.
Egypt and U.N. mediators also stepped up diplomatic efforts, and the U.N. General Assembly will discuss the violence on Thursday.
Germany called for a ceasefire and offered more aid to help Palestinians before emergency European Union talks.
Israel's bombardment of Gaza, Ramadan clashes between police and worshippers at al-Aqsa Mosque in Jerusalem and a court case by Israeli settlers to evict Palestinians from Sheikh Jarrah in Israeli-annexed East Jerusalem have caused anger among Palestinians.
In the West Bank, Israeli forces shot dead a Palestinian who tried to attack them with a gun and improvised explosives, and an unmanned aerial vehicle was downed near the border with Jordan on Tuesday, Israel's military said.
Another Palestinian was killed by Israeli forces at a West Bank protest, health officials said. The military said soldiers had come under fire, which wounded two of them, and shot back.
General strikes were held on Tuesday in Israeli-annexed East Jerusalem, Arab towns within Israel and in cities in the West Bank.
(Additional reporting by Sinan Abu Mayzer and Stephen Farrell and Steven Scheer in Jerusalem and Zainah El-Haroun and Ali Sawafta in Ramallah; editing by Timothy Heritage, Philippa Fletcher and Giles Elgood)