According to David Chater, Al Jazeera's correspondent in Jerusalem, a fuel shipment had passed through the area when a barrage of mortar shells were fired.
The fighters then broke through a fence and entered the crossing.
"An Israeli tank then fired at the Palestinians and two of the fighters were killed. Police said that two other Palestinians managed to escape back into Gaza," he said.
The Popular Resistance Committees, a part of the Islamic Jihad movement, was one of several groups that claimed responsibility for the attack.
Al Jazeera's Jacky Rowland, also reporting from Jerusalem, said that Israeli authorities believe that the fighters tried to abduct Israeli soldiers in the area.
"Word has come out that the fighters that stormed the crossing had attempted to kidnap the Israelis that were working there," she said.
"This was a very audacious attack, and a serious breach of security," she said.
"Israeli security officials do not want a repeat of the abduction of Gilad Shalit [Israeli soldier captured last year]."
Rowland also said that there are reports of a state of emergency being declared along the Gaza border.
Shortly after the battle, an Israeli military aircraft hit a vehicle carrying Islamic Jihad fighters, in Gaza City, injuring three people, one of them seriously, according to Palestinian medics.
Israel has said that it will hold the Hamas movement, which took full control of the Gaza Strip last year, accountable for the attack at the Nahal crossing.
"Hamas clearly controls the Gaza Strip. They are directly responsible for this attack and we will hold them accountable," Mark Regev, spokesman for Ehud Olmert, the prime minister, said.
|Israel has blamed Hamas for the |
crossing breach [Reuters]
"The fact that Hamas would deliberately target the major crossing point for the import of fuel into the Gaza Strip in order to kill people and close down the terminal is a clear indication that Hamas has no concern whatsoever for the people of Gaza."
Meanwhile, a member of Hamas's Izz al-Din al-Qassam Brigades and an Israeli soldier were killed in fighting during an Israeli incursion in the Gaza Strip, the army and Palestinian medics said.
"One soldier was killed and two others lightly wounded in an exchange of fire with armed men during an operation in the southern Gaza Strip," an Israeli army spokeswoman said.
"An Israeli unit entered the southern Gaza Strip on the edge of the security barrier and engaged armed men."
The spokeswoman said that 10 Palestinians were arrested in the raid and taken to Israel.