Israel says it will allow gradual and controlled entry of goods to Gaza through local merchants, an Israeli military agency that coordinates aid said on Tuesday, as global monitors say famine is unfolding in the enclave, impacting the hostages Hamas holds.

Israel's COGAT said a mechanism has been approved by the cabinet to expand the scope of humanitarian aid, allowing the entry of supplies to Gaza through the private sector.

The agency said the approved goods include basic food products, baby food, fruits and vegetables, and hygiene supplies.

"This aims to increase the volume of aid entering the Gaza Strip, while reducing reliance on aid collection by the U.N. and international organisations," it added.

It was unclear how this aid operation would work given the widespread destruction in Gaza.

Palestinian and U.N. officials say Gaza needs around 600 aid trucks to enter per day to meet the humanitarian requirements - the number Israel used to allow into Gaza before the war.

Images of starving Palestinians including children have alarmed the world in recent weeks, while a video released by Hamas on Sunday showing an emaciated captive drew sharp criticism from Western powers.

Israel in response to a rising international uproar, announced last week steps to let more aid reach Gaza, including pausing fighting for part of the day in some areas, approving air drops and announcing protected routes for aid convoys.

Hamas said it was prepared to coordinate with the Red Cross to deliver aid to hostages it holds in Gaza, if Israel permanently opens humanitarian corridors and halts airstrikes during the distribution of aid.

Israel and the United States urged the U.N. in May to work through an organisation they back, the Gaza Humanitarian Foundation, which employs a U.S. logistics firm run by a former CIA officer and armed U.S. veterans.

The U.N. refused as it questioned GHF neutrality and accused the distribution model of militarising aid and forcing displacement.

Palestinians were killed near GHF sites where limited aid was distributed, with the U.N. estimating that Israeli forces have killed more than 1,000 people seeking food since May, most near the organisation's distribution sites.

GHF denies that there have been deadly incidents at its sites, and says the deadliest have been near other aid convoys.

The war in Gaza began when Hamas killed 1,200 people and took 251 hostage in an attack on southern Israel on October 7, 2023, according to Israeli figures.

Israel's offensive has since killed more than 60,000 Palestinians, according to Gaza health officials who do not distinguish between fighters and non-combatants.

According to Israeli officials, 50 hostages now remain in Gaza, only 20 of whom are believed to be alive. Hamas, thus far, has barred humanitarian organisations from having any kind of access to the hostages and families have little or no details of their conditions.