The Israeli army has re-occupied part of the Palestinian town of Beit Hanoun where Israeli artillery killed almost 20 people earlier this month.
Israeli snipers positioned themselves on more than a dozen rooftops in Beit Hanoun and Jebaliya. Three teenage Palestinian girls were wounded by Israeli gunfire outside a school in Beit Hanoun, hospital and security officials said.
As Israeli forces killed four Gazans in fresh fighting - two militants and two civilians including a 14 year-old boy, according to Palestinian witnesses and medics - an Israeli cabinet statement said the military had been told to prepare and present a plan for a broader offensive.
Palestinian fighters, led by the ruling Hamas faction's military wing, fought against Israeli troops in both towns with land mines, anti-tank missiles and rocket-propelled grenades, security officials said. One Israeli soldier was wounded in the fighting.
The army said it was operating in the area against Gaza rocket squads, but gave no other details. It said it had no information that its troops were at Shanti's house.
Soldiers killed two gunmen from the governing Hamas faction, hospital officials said. They said a Palestinian woman, 35, was killed by Israeli shelling in an area used by rocket crews, and that troops killed a 14-year-old boy in a nearby refugee camp.
Some Israeli cabinet members had wanted Prime Minister Ehud Olmert to approve tougher action to halt rocket salvos at towns and villages that border Gaza.
A large-scale offensive, however, holds political risks for Olmert, whose popularity plummeted in opinion polls after Israel failed to crush Lebanese Hezbollah guerrillas in a recent war.
The statement said the security cabinet decided to continue operations against rocket-launching squads and targeted killings of those involved in "terror activities". It also called for continued cooperation with Cairo to prevent the smuggling of weapons into Gaza from neighbouring Egypt.
Olmert, aware of the international scrutiny of Israel's operations in Gaza, last week appeared to rule out a massive assault, saying rockets could not be halted in "one fell swoop".
The increasingly sophisticated weapons, generally made in metal workshops, killed two Israelis in the past week.
Agencies