Twelve people were killed in a pitched overnight battle between Palestinian militants and Israeli forces staging their deepest raid into Gaza City in almost a decade, just two days before Israel chooses a new government.
Israel said the raid into the centre of the sprawling coastal city by some 25 tanks backed by helicopter gunships was in retaliation for a barrage of home-made rockets fired Friday by the militant Islamic group Hamas into southern Israel, which caused no casualties.
But Palestinian officials accused hardline Israeli Prime Minister Ariel Sharon, tipped to win the most seats in Tuesday's elections and form a new coalition, of flexing Israel's military muscle to boost support after 28 months of bloodletting.
The 12 people killed were all Palestinians, at least one of them a civilian and one allegedly from Hamas' armed wing, who were killed as the Israeli incursion force ran into opposition from automatic weapons fire, anti-tank rockets and booby-trapped explosives, hospital sources said.
The raid was the deepest into the city in the northern Gaza Strip since the start of the Palestinian uprising against Israeli occupation in September 2000, and the first time the army has returned to the city centre since Palestinian self-rule was established there in 1994.
But in an act of defiance shortly after the Israelis pulled out following the night battle, Palestinian militants fired another home-made rocket into Israel from the Gaza Strip, again causing no casualties.
Hamas issued a statement to the residents of Sderot, which was the target of Friday's rocket attacks, to "leave your town or hide in the shelters. Our fighters will hit any time during incursions or tank shelling."
Israeli Defence Minister Mr Shaul Mofaz said after Friday's attack by seven Qassam home-made rockets he intended to "shake up" the militants in Gaza Strip.
Unlike the West Bank, mostly re-occupied by Israel since last June, the Gaza Strip has been frequently raided but not over-run by Israeli forces.
Mr Mofaz also warned of more operations in the Gaza Strip and the West Bank.
Hospital sources said 64 people were injured, six of them seriously, in the exchanges of fire.
The army destroyed business premises and other buildings, including metal workshops in the town believed to produce rockets and other arms to use against Israeli targets, a Palestinian security source said.
But a Gaza-based Hamas leader, Mr Abdelaziz Rantissi, called for more suicide bombings against Israelis in the wake of the attack, a clear blow to Palestinian interfactional talks in Cairo.