Two Israeli civilians were killed by Palestinian gunmen who crossed the border from Gaza before fleeing back there today.
The Israeli army rushed forces into northern Gaza after the attack in Nahal Oz and at least one of the Palestinians was killed.
The attack raised the likelihood of a new round of fighting.
Two smaller militant groups, Islamic Jihad and the Popular Resistance Committees, claimed responsibility for the attack.
Israel has said it holds Hamas responsible for all violence coming out of Gaza.
Yesterday, the militant Hamas group threatened to burst across the border to end Israel’s blockade of Gaza which began last June.
There had been a sharp drop in fighting between Israel and Palestinian militants since Israel ended a broad military offensive early last month.
Meanwhile Egypt has been trying to mediate a cease-fire between Israel and Hamas, which controls Gaza.