Hamdi Kalakh, a member of the Izz al-Din al-Qassam Brigades, died and three other Palestinians were wounded in the attack on Thursday in Khan Younis.
Israeli radio said Kalakh was responsible for rocket attacks on Israel.
Meanwhile, Aljazeera reported that Israeli occupation forces had bombed and raided the Jenin refugee camp, which has been under curfew for the past four days, after Prime Minister Ariel Sharon ordered his army to “take all necessary steps” against Palestinian resistance groups.
Eyewitnesses confirmed that troops in armoured vehicles had beseiged the four entrances to the camp.
Dozens of soldiers occupied houses overlooking the camp following a "chaotic" bombing attack which particularly targeted the main electricity transformer, causing an electricity blackout all over the camp.
Eleswhere, Israeli tanks and bulldozers rumbled into Beit Hanoun, where witnesses said troops began levelling trees and shooting at Palestinians injuring nine, three seriously.
"I have instructed the minister of defence to take all necessary steps to avoid such actions in the future," Sharon told reporters in Jerusalem after a Palestinian rocket strike on Ashkelon city that caused no damage or casualties.
An Israeli security source told Reuters: "We are levelling shrubbery, bushes and trees used as shelter for the (Hamas) cell that fired the Qassam rocket."
The rocket which landed in an industrial zone of Ashkelon, a coastal city of 116,000 people nine km north of the Gaza boundary, was the farthest a Qassam had been fired into Israel since the Palestinian uprising for statehood began in 2000.
Palestinian officials said Palestinian security forces had rushed to Beit Hanoun shortly after the rocket was fired to arrest Hamas fighters responsible, preventing further launchings.
Palestinians protested against
the clampdown on charities
"There was a chase and a shootout," a Palestinian security official told Reuters shortly before Israel's incursion. "Our forces are still searching the area in the northern Gaza Strip."
Palestinian groups renounced their truce with Israel after they assassinated a Hamas political leader in a missile strike.
In an apparent clampdown on Hamas affecting thousands of needy Palestinians, the Palestinian Monetary Authority said it had frozen 39 bank accounts held by 12 Islamic charities, most of which are widely believed to be Hamas-sponsored.
The move followed a US decision to freeze assets of six top Hamas figures after a human bombing which killed 21 people in Jerusalem in what Hamas called retaliation for army search-and-arrest raids that continued despite the truce.
Hamas denied any official connection with the 12 charities, but many of their directors are former or current senior activists in the organisation.
Several thousand charity recipients, some holding banners reading "Don't make us beggars" and "We are not terrorists", took to the streets of Gaza City and Rafah in protest after banks refused to cash their monthly welfare checks.
Palestinian President Yasir Arafat has called on resistance groups to re-instate a broken truce after Israel killed a number of Hamas activists, including top leader, Ismail Abu Shanab.
The power struggle between
Arafat and Abbas has intensified
The veteran Palestinian leader is also facing a power struggle with his Prime Minister, Mahmud Abbas, over control of the security apparatus.
Abbas’s cabinet decided to include the security forces in its budget, as the battle for control over them intensified.
An allocation was made on Wednesday under the heading "National Security Forces" to cover personnel whose salaries were previously paid directly from Arafat's office, officials said.
Abbas and his security chief, Muhammad Dahlan, have been seeking to wrest control of the myriad Palestinian security forces from Arafat with backing from the US and Israel.
Meanwhile, a Palestinian teenager died of injuries received when Israeli missiles slammed into the Jabaliya area during a failed attempt to assassinate a Hamas leader.
A 65-year-old bystander was also killed in the attack, Israel’s third, in a week of tracking and killing activists.