"Fighters from the Izz al-Din al-Qassam Brigades have managed to surround a special Zionist unit inside a residential building ... in the Zaitun district of Gaza City," the group said in a statement on Thursday.

"Zionist planes (helicopters) opened fire on the area," it said. 

Mahmud Abu Jarad, who owns the building, confirmed to a local radio station that a gunfight had broken out between Israeli occupation troops and resistance fighters. 

Abu Jarad said his wife and children were in the building.

Palestinians killed

The army would not comment on the incident. However, Israeli military sources said troops had shot and either injured or killed two resistance fighters near Zaitun. 

"Troops at the Netzarim junction spotted three armed Palestinians who were preparing a shooting attack. They opened fire and identified two hits," the source said. 

The third fighter fled the area and a search was underway to locate him.