Captain Jacob Dallal, a military spokesman, said the Israeli navy spotted the boat near two Palestinian vessels off the Gaza coast on May 3.

It fled before it could be intercepted, its crew dumping 11 bags overboard, Dallal said.
 
"Israeli naval divers searched and retrieved 550kg of military grade TNT," he said.

Dallal said the Palestinian boat crews were interrogated and found to have no connection to the smuggling attempt.

His office had said earlier that initial reports indicated the Palestinians had received the shipment.

Tunnels

Egypt is Gaza's southern neighbour.

Israeli troops bombarded targets
in the Gaza Strip on Tuesday

Palestinian fighters in Gaza have long used tunnels under the border to bring in arms to fight the resistance.

Israel quit Gaza last year after 38 years of occupation, but maintains control of the coastal strip's airspace and waters with the stated aim of preventing arms from reaching resistance groups.

One Palestinian faction recently added Russian-made "Grad" missiles to its arsenal of homemade projectiles.

Palestinians call the escalation a response to Israeli army crackdowns in Gaza and the occupied West Bank.

Meanwhile, Israel continued its bombardment of parts of the Gaza Strip on Tuesday, from where Palestinian fighters were launching Qassam rockets.