The resistance group Hamas said it carried out the attack against Neve Dekalim in the southern Gaza Strip on Friday, a day after three Palestinian fighters killed three soldiers on the fringes of another illegal settlement to the south.
In the attack, which happened several hours before the start of Yom Kippur, the Jewish Day of Atonement, a mortar bomb struck a home, wounding a woman in the head and slightly injuring one person.
The army said the woman later died in hospital. Israel Radio said she was a visitor from Jerusalem.
Resistance fighters fire mortar bombs and crude rockets at Jewish settlements in Gaza almost daily, but it has been two years since an Israeli has been killed in such an attack in the Strip.
After the incident, Israeli occupation troops in Neve Dekalim fired towards the nearby Khan Yunis refugee camp. Medics said two Palestinians, one of them a four-year-old boy, were wounded.
The attack fuelled settlers' anger over Prime Minister Ariel Sharon's plan to pull Israelis out of the area.
A settler spokesman said Sharon's offer to pay cash advances to Gaza settlers willing to accept state compensation and leave their homes only emboldened Palestinian fighters.
"We wouldn't be surprised if the words 'From Sharon with
love' aren't written on future mortar bombs"
"We wouldn't be surprised if the words 'From Sharon with love' aren't written on future mortar bombs," the spokesman said.
The settler umbrella group, YESHA, issued a statement urging Sharon to take time during the Yom Kippur fast day to "search his soul and abandon the disengagement plan that represents a security disaster".
Some 8000 Israelis live in the 21 settlements that Israel has built in the Gaza Strip since capturing the area in the 1967 Middle East war. About 1.3 million Palestinians live in the narrow coastal region.