It came as Palestinians commemorated the 76th anniversary of the "Nakba", when around 760,000 Palestinians fled or were driven from their homes during the 1948 wartime creation of Israel.
Israeli forces have battled and bombed Hamas militants around Gaza's far-southern city of Rafah, but clashes have also flared again in northern and central areas which Israeli troops first entered months ago.
The upsurge in urban combat in besieged Gaza has fuelled US warnings that Israel risks being bogged down in a counterinsurgency operation for years.
But despite previous threats by US President Joe Biden to withhold some arms deliveries over Netanyahu's insistence on attacking Rafah, his administration informed Congress on Tuesday of a new $1 billion weapons package for Israel, official sources told AFP.
The European Union urged Israel to end its military operation in Rafah "immediately", warning that failure to do so would "inevitably put a heavy strain" on ties with the bloc.
But even as he announced that hundreds of thousands had been "evacuated", Netanyahu insisted there was no humanitarian crisis in Rafah.
"Our responsible efforts are bearing fruit. So far, in Rafah, close to half a million people have been evacuated from the combat zones. The humanitarian catastrophe that was spoken about did not materialise, nor will it," the premier said in a statement.
- 'Harder than the Nakba' -
The sight of desperate families carrying their scant belongings through the ruins of war-scarred cities has evoked for many the events of the 1948 Nakba which translates from Arabic as "catastrophe".
Hamas declared in a Nakba Day statement that "the ongoing suffering of millions of refugees inside Palestine and in the diaspora is directly attributed to the Zionist occupation".
The Islamist militant group said "their legitimate right to return to their homes from which they were displaced cannot be compromised or relinquished".
One displaced Gaza man, Mohammed al-Farra, whose family fled their home in Khan Yunis for the coastal area of Al-Mawasi, said: "Our 'Nakba'... is the worst ever.
"It is much harder than the Nakba of 1948."
Thousands marched to mark the day in cities across the Israeli-occupied West Bank, waving Palestinian flags, wearing keffiyeh scarves and holding up symbolic keys as reminders of long-lost family homes.
Netanyahu has vowed to destroy Hamas and bring home the hostages still held in Gaza.
An ardent supporter of Israel, Biden has clashed with right-wing hawk Netanyahu as a wave of pro-Palestinian campus protests have heightened election-year political pressure on the Democratic president.
In a Wednesday interview with CNBC, Netanyahu addressed the tensions, saying: "Yes, we do have a disagreement on Gaza. Rather, on Rafah. But we have to do what we have to do."
Washington has also repeatedly urged Israel to work on a post-war plan for Gaza and supports the goal of a two-state solution, which Netanyahu and his far-right allies strongly oppose.
US State Department spokesman Vedant Patel said that, without a political plan for the future, Palestinian militants "will keep coming back" trapping all sides in "this continued cycle of violence".
Israeli Defence Minister Yoav Gallant on Wednesday said he would "not agree to the establishment of an Israeli military administration in Gaza, Israel must not have civilian control over the Gaza Strip."
The war broke out after Hamas's October 7 attack on southern Israel which resulted in the deaths of more than 1,170 people, mostly civilians, according to an AFP tally of Israeli official figures.
The militants also seized about 250 hostages, 128 of whom Israel estimates remain in Gaza, including 36 the military says are dead.
Israel's military retaliation has killed at least 35,233 people, mostly civilians, according to the Gaza health ministry, and an Israeli siege has brought dire food shortages and the threat of famine.
- 'Civilians are starving' -
The Israeli military said Wednesday its aircraft had "struck and eliminated approximately 80 terror targets" including military compounds, missile launchers and weapons depots.
It also reported battles in eastern Rafah and in Jabalia in northern Gaza, where it said it had killed militants, adding troops were also fighting in the Zeitun area.
Hamas's armed wing also reported its fighters were clashing with troops in the Jabalia area, much of which has been reduced to rubble.
At least five people were killed, including a woman and her child, in two Israeli air strikes on Gaza City overnight, Gaza's civil defence agency said.
At the city's Al-Ahli hospital, a wounded man, his bare chest smeared with blood, lay on a cot while outside several men placed a shrouded corpse in the shade of a tree.
Air raid sirens blared in areas of southern Israel near the Gaza border before the army gave the all-clear, saying it had intercepted a projectile fired from the Jabalia area.
US, Egyptian and Qatari mediators have pushed for a truce and hostage release deal for months, but the talks are now close to "a stalemate", said Qatar's Prime Minister Mohammed bin Abdulrahman Al-Thani.
Sporadic aid deliveries into Gaza by truck have slowed to a trickle since Israeli forces took control of the Gaza side of the Rafah crossing with Egypt last week.
Another convoy carrying humanitarian relief goods was ransacked by Israeli right-wing activists on Monday after it had crossed from Jordan through the occupied West Bank.
Washington and London condemned the attack, and EU foreign policy chief Josep Borrell said he was "outraged" about the assault at a time "hundreds of thousands of civilians are starving".
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