Israel bombed a Hamas training camp in Gaza on Wednesday, killing two people, after warning it would respond to continuing rocket fire from the territory where factional fighting raged for a fourth day.
Another 30 people were wounded in the bombing against the camp of the "executive force" controlled by the Islamist movement, medics and security sources said.
"In response to the continued terror activities of the Hamas and other terror organisations... the IDF (Israel Defence Forces) carried out an aerial attack against a Hamas terror command center in Rafah," an army spokesman said.
The raid came hours after Israel fired at uninhabited areas of Gaza after threatening to respond to rocket fire that has wounded two civilians during the past four days.
But Israel has for the moment ruled out a widescale incursion into Gaza, where escalating violence between rival groups has killed 38 people since Sunday.
"No-one will be able to shelter from our response," Defence Minister Amir Peretz said at a ceremony marking the 40th anniversary of Israel‘s annexation of east Jerusalem following the 1967 Six Day War.
"Israel will not be party to the Palestinian internal fighting going on in Gaza, but will react severely to the continuing rocket fire," said Peretz, a resident of the town of Sderot that has borne the brunt of the rockets.
"Israel will carry out the operations aimed to defend its sovereignty and the security of its citizens," he said. "We will not allow terrorist organisations to dictate their will in the Middle East."
Ezzedine al-Qassam Brigades, the armed wing of the Hamas movement that is the senior partner in the Palestinian coalition cabinet, claimed responsibility for the attacks in a statement.
Gaza militants launched seven rockets into Israel on Wednesday, with five of the projectiles landing inside the Jewish state causing damage but no injuries.
Since the start of the factional fighting in Gaza on Sunday, 23 rockets have landed inside Israel, wounding two civilians and causing damage.
Sderot has been the flashpoint for Gaza rocket fire and on Wednesday the local authorities announced that schools would be closed because of the attacks.
Israeli-Russian billionaire Arkady Gaydamak told AFP he had rented two hotels to evacuate up to 1,000 of Sderot‘s 20,000 residents.
Public radio reported that hundreds of Sderot residents have already left the town, fleeing the rocket volleys.
Israel has so far ruled out a widescale incursion to combat the attacks amid the raging internecine fighting between rival Hamas and Fatah factions.
A five-month Israeli operation against militants in Gaza between late June and November left about 400 Palestinians dead.
The incursion ended with a November 26 truce, under which Israeli troops withdrew from the territory and Palestinian militants were due to halt rocket fire.
The truce has largely held despite violations by both sides. Several Palestinians have been killed in short Israeli incursions or by troop fire from across the border and about 300 rockets have been fired into Israel, wounding a handful of people.
But the Israeli government, weakened by a scathing report on last year‘s Lebanon war and a string of corruption scandals, has come under increasing pressure to do something to halt the nearly daily rockets.
Despite constant aerial surveillance and regular ground incursions into launch areas, the military has failed to prevent attacks with home-made rockets that can be fired within seconds from well-hidden sites.