Palestinian militants have fired rockets on a southern Israeli town in apparent retaliation for an overnight raid in Gaza City which left 11 Palestinians dead.
Anger and grief erupt in Gaza
It was the first rocket attack on Israeli territory for about three weeks.
Vows of revenge rang out as Palestinians took to the streets of Gaza for a mass funeral for those killed.
Correspondents say many Palestinians see recent Israeli operations as a precursor to a full takeover of Gaza - a move the Israeli defence minister has said is being considered.
The Qassam rockets were aimed at Sderot, an industrial town just outside the Gaza Strip.
Three Israelis were injured, including a man standing at the entrance to a factory, and there was slight property damage.
The Sderot area, which is on the edge of Israel's Negev desert, has been repeatedly hit by Qassam rockets fired by members of the Islamic militant group Hamas in a 29-month-old Palestinian uprising against Israeli occupation.
The attacks stopped in late January when Palestinian police began to crack down on Qassam squads whose actions had provoked punishing Israeli army incursions.
But the fact that a rocket attack was launched straight after the Israeli raid is being seen as an act of defiance by militant groups in Gaza, says the BBC's James Reynolds in Jerusalem.
The Israeli army said it launched the latest operation in Gaza following the deaths of four soldiers, whose tank was blown up by the Islamic militant group Hamas on Saturday.
Up to four metal workshops - said by Israel to have been used by Palestinians to manufacture the Qassam rockets - were destroyed by troops accompanied by bulldozers.
At least 30 tanks, backed by helicopters, swept into the Shajaiyeh and Tufah districts - known strongholds of Palestinian militants - after nightfall on Tuesday.
Israel said it was targeting weapons factories
The incursion was the bloodiest since 12 Palestinians died in an Israeli raid on Gaza City on 26 January.
Fury erupted in the Gaza Strip during a mass funeral for the 11 Palestinians killed overnight.
Dozens of militants fired rifles in the air and the crowd chanted "Destroy Tel Aviv!"
One man, whose house was reduced to rubble in the raid, denied it was a weapons workshop.
"Israel simply wants to destroy our economy, by using all the tools of its propaganda machinery," Mohammad Abdelhamid al-Qattaa told the French news agency, AFP.
The Palestinian leadership has called on the UN Security Council to condemn the Gaza raid.
Violence also continued in the West Bank on Wednesday.
Two Palestinians were shot dead in Nablus, as Israeli troops conducted house-to house searches and reimposed a curfew in the city's old centre, Palestinian witnesses said.
And in Jenin, a militant from the al-Aqsa Martyrs Brigades was killed when his car blew up, Palestinian security officials said.
Three other people were hurt in the blast, which the officials blamed on the Israeli army.