Israel has sent troops and tanks into the Gaza Strip and attacked key targets from the air in a major offensive aimed at securing the release of a teenage soldier captured by Palestinian militants.
Much of the northern Gaza Strip was plunged into darkness after Israeli war planes hit a power station, two bridges and a road in a series of night-time raids.
Flames poured into the night sky from the power plant in central Gaza and the sound of shelling could be heard in the southern city of Rafah as combat helicopters flew above.
'We are using all forces that we can by land and by air in order to get him home,' Israeli army spokeswoman Noa Meir said of the kidnapped soldier, 19-year-old Gilad Shilat.
It was the first major ground offensive against Gaza since Israel pulled settlers and troops from the impoverished coastal strip last year in a highly controversial operation that ended a 38-year occupation.
No casualties have so far been reported.
Israel massed thousands of troops on the border with Gaza following Shilat's capture in a militant attack on Sunday that also killed two Israeli soldiers and two Palestinian fighters.
Prime Minister Ehud Olmert ruled out any negotiations with the kidnappers and has held the Hamas-led government and Palestinian Authority president Mahmud Abbas responsible.
The incursion came amid international appeals for restraint over the soldier's kidnapping which triggered the worst Middle East crisis since the militant Islamist movement Hamas took office in March.
An army spokesman said the operation was 'to increase pressure on the Palestinian Authority and on Hamas and the terrorist organisations to release the soldier and also to increase our control to ensure he is not smuggled out of the area since we do have information he is in the southern area of Gaza.
One of the bridges destroyed in the air strikes linked the north and the south of Gaza, with the apparent aim of preventing movement by militants holding the missing conscript.
Bracing for the onslaught, Palestinian militants erected earthen mounds across thoroughfares and sealed off the entrances to refugee camps in parts of Gaza, one of the most densely populated regions on earth.
Men, women and children packed into at least a dozen cars and a horse-drawn cart could be seen speeding into Rafah from areas to the east as Israeli troops entered the territory while armed gunmen prowled the streets.
'All the people are leaving. They're heading west because we're afraid of the sweep, we're escaping the invasion,' said Auda Adwan, 20.
The offensive followed a landmark agreement Tuesday between Palestinian factions on an political initiative that implicitly recognises Israel's right to exist, a historic shift in policy by Hamas.
Israel -- which has threatened it could take out Hamas ministers over the captured soldier -- dismissed the deal however as an 'internal matter'.
Armed groups have vowed not to release the soldier until all Palestinian women and children are freed from Israeli jails, a demand already categorically ruled out by Olmert, facing his first major crisis since taking office in May.
'Israel is prepared for a long battle against Palestinian terror,' Olmert told parliament Tuesday.
But he added: 'Even in the difficult circumstances of recent days I declare that we will do everything in our power to hold negotiations with the Palestinians.'
US Secretary of State Condoleezza Rice had urged Israel to give diplomacy a chance, saying there was a 'concerted international effort' underway for the release of the soldier.
Sunday's attack, which saw gunmen from Hamas's armed wing and other militant groups tunnel their way into Israel, was the deadliest assault in the area since Israel's pullout from Gaza.
Tensions have long been mounting however, with Israel and the West boycotting Hamas -- which advocates the destruction of the Jewish state -- as a blacklisted terror group and plunging the territories into a deep financial and political crisis.
Turning the screws on the Hamas government, one cabinet minister warned Israel could easily kidnap its high-profile members.
Deputy Prime Minister Shimon Peres also levelled threats against Hamas's Damasus-based political supremo Khaled Meshaal, who famously survived a Mossad assassination attempt in 1997.
A spokesman for the Popular Resistance Committees -- one of three groups that claimed Sunday's attack along with Hamas's armed wing and a group calling itself Army of Islam -- insisted the soldier would remain in captivity as long as Israel ignores their demands.
Egypt, France and the Vatican, as well as the United States, have made efforts to exert pressure on the Palestinians to hand over the soldier.
Past history of soldiers kidnapped at the hands of Palestinians bodes ill for Shalit, with all nine such previous cases ending in death.
In the West Bank, Israeli police said they were looking into reports of a missing Jewish settler after the PRC claimed it was holding a second Israeli.
Public television later reported that the unidentified youth had been taken to the West Bank city of Ramallah by kidnappers.
Meanwhile, Hamas and the rival Fatah movement announced a deal drawn up by Palestinian prisoners that implicitly recognises Israel's right to exist by calling for a Palestinian state on land conquered in 1967.
All factions excluding Islamic Jihad had approved the initiative which is due to go before Abbas and Hamas prime minister Ismail Haniya for signing.
Abbas had vowed to put the statehood initiative to a referendum on July 26 should no agreement be reached, although Hamas had slammed the vote as an attempt to overthrow its government.