"We are now several days into a dangerous escalation in and around Gaza," Ban told an emergency meeting he called Thursday of the UN Security Council on the Middle East.
Over the past several days, the Palestinian factions Hamas and Islamic Jihad have fired a barrage of more than 550 rockets and mortars from Gaza into Israel, and the Israeli Defence Forces have launched more than 500 air strikes on Gaza, Ban said.
"Today, we face the risk of an all-out escalation in Israel and Gaza, with the threat of a ground offensive still palpable -- and preventable," Xinhua quoted the UN chief as saying, adding that "it is now more urgent than ever to try to find common ground for a return to calm and a cease-fire understanding".
Civilians are paying the price for the continuation of conflict, Ban said, noting that his "paramount concern is the safety and well-being of all civilians, no matter where they are".
"The excessive use of force and endangering of civilian lives are also intolerable," he said. "It is unacceptable for citizens on both sides to permanently live in fear of the next aerial attack."
The UN chief said he has been engaging with world leaders, including the king of Saudi Arabia, the emir of Qatar, the president of Egypt, the heads of the League of Arab States and the Organisation of Islamic Cooperation, and the US Secretary of State and European Union High Representative.
"I have also spoken to Prime Minister Netanyahu of Israel and President Abbas of Palestine," Ban said. "I called on both sides to exercise maximum restraint, show statesmanship and to weigh the risks of further escalation."
Calling the current situation one of the most critical tests the region has faced in recent years, the secretary-general said: "More than ever, the situation calls for bold thinking and creative ideas. We must strive to restore, not only calm today, but a political horizon for tomorrow."
He urged the parties concerned, regional partners and the international community to do everything possible to resume meaningful negotiations towards a viable two-state solution."
Tensions have been rising in the region since Israel conducted a wide-scale crackdown on Hamas in the West Bank searching for three missing Israeli teens who were kidnapped and killed allegedly by suspected Palestinian militants last month. Soon afterwards, a Palestinian teenager in Jerusalem was abducted, tortured, and murdered in an alleged revenge killing, further fuelling animosities and clashes.
As of Thursday afternoon, the Israeli Air Force struck down about 800 targets in the Gaza Strip, killing at least 81 Palestinians. More than 500 people were injured in the attacks.
Since the operation started, hundreds of rockets and mortars were launched towards Israel, including cities in Israel's central, south central plain and the northern plain area, as well as in the Jerusalem greater area and southern communities.