At least two Israelis were killed and a third seriously wounded when two home-made missiles fell on the Jewish town of Sderot east of Gaza.
One of the victims of Hamas' first ever deadly rocket attack on Israel was a three-year-old boy on his way to nursery school.
The attack came on Monday a few hours after Israeli helicopter gunships attacked the Hay Al-Zaytun neighbourhood in central Gaza, destroying a foundry and injuring some Palestinian civilians.
Earlier, the Israeli army shot and killed two Palestinians in Khan Yunis, including an 11-year-old boy, medical sources and eyewitnesses said.
On Sunday, an Israeli occupation soldier was killed and five others wounded when a powerful bomb exploded beneath an Israeli army outpost outside the city of Khan Yunis in southern Gaza.
The 150kg device reportedly was planted inside a tunnel dug by Palestinian resistance operatives beneath the outpost.
Hamas declared its responsibility for both attacks on the occupation army's outpost and the Sderot settlement.
A spokesman for the Islamic resistance group said the attacks were in retaliation for the killing by the Israeli army on Saturday of seven Palestinian activists and two other civilians as well as the assassination of the two Hamas leaders Shaikh Ahmad Yasin and Abd al-Aziz al-Rantisi.
Also on Monday, the Israeli army ended its three-day operation in Nablus' old quarter, bringing havoc to an already tormented city.
However, Israeli troops, backed by tanks and armoured personnel carriers, stormed the small town of al-Yamun, near Jenin, where they carried out provocative house-to-house searches.
Hamas demonstrates in Gaza
against Israel's actions in Nablus
Palestinian Authority Prime Minister Ahmed Quraya strongly condemned "Israeli brutality and criminality" in Nablus, calling the Israeli government of Prime Minister Ariel Sharon a "government of blood and death".
Sharon earlier congratulated his army for killing nine Palestinians in Nablus, calling the operation a "resounding victory in our war on terror".
Israel brands as "terror" all forms of Palestinian resistance to Israel's decades-old occupation of the Palestinian homeland.
On Sunday, thousands of Palestinians took part in the mass funeral of the seven fallen activists amid calls for revenge.
Sharon describes Palestinian
resistance as acts of terror
City leaders condemned "Arab silence" and "international apathy" vis-a-vis "Israeli crimes" against their people.
Israel argues that its almost daily incursions into Palestinian population centres are aimed at "intercepting" and killing Palestinian activists planning to carry out attacks on Israeli soldiers and settlers.
However, Palestinians dismiss Israeli claims, arguing Palestinian resistance is a mere reaction to Israel's Nazi-like persecution of the Palestinian people and that the real Israeli goal is to torment and terrorise ordinary Palestinians for the purpose of bullying the Palestinian society into surrender.