Witnesses said fighters from the al-Aqsa Martyrs' Brigades opened fire at a military intelligence headquarters in the Gaza town of Rafah on Sunday.
The firing happened during a march protesting against Palestinian against President Yasir Arafat's appointment of his cousin, Musa Arafat, to the position of Gaza's security chief.
Palestinian police in the building fired back and the two sides engaged in heavy fighting for several minutes, witnesses said.
They said the fighters, many of whom were masked, then surrounded the building and shouted through loudspeakers for all the policemen inside to come out. The gunmen also threatened to burn down the building.
The appointment of Musa Arafat
has lead to charges of nepotism
Earlier on Sunday, Palestinian fighters attacked a security post in Gaza, stepping up pressure on Yasir Arafat to stamp out corruption, in a crisis deepened by the resignation of Prime Minsiter Ahmad Quraya.
Arafat has not faced such a chorus of local and international demands for change in nearly four years of Israeli-Palestinian conflict.
Arafat refused to accept Quraya's resignation tendered on Saturday and held four-hour talks on the matter with Quraya on Sunday.
Negotiations minister Saib Uraiqat, who attended the talks, confirmed that Quraya was still in his position and that the two men had not reached an agreement.
"We had very in-depth discussions about all issues, how to limit the damage and what measures were needed to restore the rule of law," he said.
"President Arafat rejected completely the resignation of Abu Alaa [Quraya] and, according to the law, if the Palestinian leader rejects the resignation, the resignation is not effective."
Arafat named Musa Arafat as his new Gaza security chief in a move that led thousands to march against the appointment of a member of an old guard who is widely viewed as corrupt.
Two Israelis wounded
Meanwhile, two Israelis were slightly wounded late on Sunday when Palestinian gunmen fired on them near the Tapua settlement in the northern West Bank, a military spokesman said.
They were being treated in hospital in Israel, the spokesman
said, but could not say whether they were Jewish settlers.
Elsewhere, a makeshift rocket launched from the Gaza Strip
exploded in a field near the town of Sderot, in southern Israel, without causing any casualties, the spokesman added.