By Maayan Lubell and Parisa Hafezi

JERUSALEM/DUBAI (Reuters) -Israel pounded Iran for a second day on Saturday and Prime Minister Benjamin Netanyahu said its campaign would intensify dramatically, while Tehran called off nuclear talks that Washington had held out as the only way to halt the bombing.

A day after Israel wiped out the top echelon of Iran's military command with a surprise attack on its old foe, it appeared to have hit Iran's oil and gas industry for the first time, with Iranian state media reporting a blaze at a gas field.

Netanyahu said Israel's strikes had set back Iran's nuclear programme possibly by years and rejected international calls for restraint.

"We will hit every site and every target of the Ayatollahs' regime, and what they have felt so far is nothing compared with what they will be handed in the coming days," he said in a video message.

In Tehran, Iranian authorities said around 60 people, including 29 children, were killed in an attack on a housing complex, with more strikes reported across the country. Israel said it had attacked more than 150 targets.

Iran had launched its own retaliatory missile volley on Friday night, killing at least three people in Israel. Air raid sirens sent Israelis into shelters as waves of missiles streaked across the sky and interceptors rose to meet them.

U.S. President Donald Trump has lauded Israel's strikes and warned Iran of much worse to come. He said it was not too late to halt the Israeli campaign, but only if Tehran quickly accepted a sharp downgrading of its nuclear programme at talks with Washington due to be held on Sunday. 

Host Oman confirmed on Saturday that the next round of talks had been scrapped. Iranian Foreign Minister Abbas Araqchi said holding talks was unjustifiable while Israel's "barbarous" attacks were ongoing.

In the first apparent attack to hit Iran's energy infrastructure, Iranian media reported a fire on Saturday after Israel bombed the South Pars gas field in southern Bushehr province.

Worries about potential disruption to the region's oil exports had already boosted the price of crude by about 7% on Friday, even though Israel had spared Iran's oil and gas industry on the campaign's first day.

An Iranian general, Esmail Kosari, said Tehran was reviewing whether to close the Strait of Hormuz controlling access to the Gulf for tankers. 

With Israel saying its operation could last weeks, and urging Iran's people to rise up against their Islamic clerical rulers, fears have grown of a regional conflagration dragging in outside powers.

"If (Supreme Leader Ayatollah Ali) Khamenei continues to fire missiles at the Israeli home front, Tehran will burn," Israeli Defence Minister Israel Katz said.

Tehran warned Israel's allies that their military bases in the region would come under fire too if they helped shoot down Iranian missiles.

However, 20 months of war in Gaza and a conflict in Lebanon last year have decimated Tehran's strongest regional proxies, Hamas in Gaza and Hezbollah in Lebanon, reducing its options for retaliation. 

NIGHT OF BLASTS AND FEAR IN ISRAEL AND IRAN

Iran's overnight fusillade included hundreds of ballistic missiles and drones, an Israeli official said. Three people, including a man and a woman, were killed and dozens wounded, the ambulance service said. 

In Rishon LeZion, south of Tel Aviv, emergency services rescued a baby girl trapped in a house hit by a missile, police said.

In the western suburb of Ramat Gan, near Ben Gurion Airport, Linda Grinfeld described her apartment being damaged: "We were sitting in the shelter, and then we heard such a boom. It was awful."

The Israeli military said it had intercepted surface-to-surface Iranian missiles as well as drones, and that two rockets had been fired from Gaza.

In Iran, Israel's two days of strikes destroyed residential apartment buildings, killing families and neighbours as apparent collateral damage in strikes targeting scientists and senior officials in their beds.

Iran said 78 people had been killed on the first day and scores more on the second day, including 60 when a missile brought down a 14-storey apartment block in Tehran, where 29 of the dead were children.

State TV broadcast pictures of a building flattened into debris and the facade of several upper storeys lying sideways in the street, while slabs of concrete dangled from a neighbouring building.

"Smoke and dust were filling all the house and we couldn't breathe," 45-year-old Tehran resident Mohsen Salehi told Iranian news agency WANA after an overnight air strike woke his family. 

Fars News agency said two projectiles had hit Mehrabad airport, located inside the capital, which is both civilian and military.

Israel sees Iran's nuclear programme as a threat to its existence, and said the bombardment was designed to avert the last steps to production of a nuclear weapon.

A military official on Saturday said Israel had caused significant damage to Iran's nuclear facilities at Natanz and Isfahan, but had not so far taken on another uranium enrichment site, Fordow, dug into a mountain. 

The official said Israel had "eliminated the highest commanders of their military leadership" and had killed nine nuclear scientists who were "main sources of knowledge, main forces driving forward the (nuclear) programme".

Tehran insists the programme is entirely civilian and that it does not seek an atomic bomb. However the U.N. nuclear watchdog reported it this week as violating obligations under the global non-proliferation treaty.

(Reporting by Reuters; Writing by Cynthia Osterman, Stephen Coates and Angus McDowall; Editing by Daniel Wallis, Raju Gopalakrishnan, Kevin Liffey, Peter Graff)