The UN chief said the threat of an Israeli ground offensive and "an all-out escalation" is preventable only if Hamas, which controls the Gaza Strip, stops firing rockets and mortars into Israel.
The secretary-general, who is engaged in an intense round of global diplomacy to try to end the conflict, called for "bold thinking and creative ideas" and urged the international community to accelerate efforts to immediately end the violence.
"Any further spiral of violence could have alarming unforeseen consequences," he warned.
Ban again condemned Hamas and Islamic Jihad for launching a barrage of more than 550 rockets and mortars into Israel - but in a clear message to Israel he also said "the excessive use of force and endangering of civilian lives are also intolerable."
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Stressing that his "paramount concern" is the safety and well-being of civilians, he noted that 58 Palestinians, mainly civilians, are reported to have been killed and 339 injured, while Israeli attacks have destroyed or damaged some 150 homes and displaced 900 people.
He said he urged Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas in recent phone conversations "to exercise maximum restraint, show statesmanship and to weigh the risks of further escalation."
"Gaza, and the region as a whole, cannot afford another full-blown war and another fault line," Ban said.
"The potential negative spillover elsewhere in the West Bank is also unpredictable in an already tenuous and combustible situation.