The missiles cut off electricity when they hit a generator on Monday.

Another of the buildings hit was a metal foundry, which the army said was used to make weapons. There were no reports of casualties.

Aljazeera's correspondent reports a state of tension prevailing as Israeli surveillance planes fly overhead which indicates that warplanes may carry out strikes in the area.

The latest missile strike followed the deaths of five occupation troops in an attack by resistance fighters on an army post on Sunday.

In Khan Yunus, scene of a recent major Israeli operation, Majid Abu Salim, a member of Islamic Jihad's military wing, was killed in an explosion in a house in the al-Katiba quarter.

In the West Bank city of Nablus, Israeli troops killed a fighter from the resistance group Hamas - one of the factions behind Sunday's attack on an Israeli military outpost at the border between Gaza and Egypt.

Israel Radio said top army officers had agreed to a major military response in Gaza that would be launched in the coming days.

Blow to optimists

Prime Minister Ariel Sharon said any future talks with Palestinian leaders would depend on a halt to attacks.

Ariel Sharon insists on
Palestinians halting attacks  

"Any development depends on the Palestinian leadership and its actions," he told visiting members of the US Congress in Jerusalem. 

Growing violence in Gaza has dealt a blow to optimists who thought Arafat's death on 11 November in a Paris hospital could usher in calm to end a 4-year-old uprising and bring peace to the Middle East after decades of conflict.

Sunday's carefully planned attack on the Israeli post was the army's heaviest loss in seven months. Resistance fighters burrowed underneath and set off a 1500kg bomb, turning buildings to rubble and killing five soldiers.
 
Israel closed the Rafah border with Egypt - the only real access to the outside world for residents of fenced-in Gaza, who are only very rarely allowed to cross into Israel.