At least five Palestinians have been killed in an Israeli air raid on Gaza City, reports say.
Hamas said two of its members died when their car was hit
The militant group Hamas said a senior member of its military wing Saed Arabeed and his assistant died in the bombing.
Israeli security sources said Mr Arabeed was responsible for raids against Israelis over the past decade and was the target of the attack.
This is the first Israeli air strike in the Gaza Strip since the beginning of the war in Iraq.
Witnesses say Israeli aircraft fired missiles in an apparent attack on a car.
There were scenes of pandemonium as ambulances rushed casualties to hospital.
Two of the other dead were Hamas militants, Ashraf al-Halabi and Imad Nassar, according to reports.
The remaining dead and wounded were civilians, said doctors, including children hit by shrapnel from the second missile, which exploded after people had run into the street to see what had happened.
Correspondents say the area of the raid, the Zeitoun neighbourhood in the eastern part of the city, is known as a stronghold of the Islamic militant group, Hamas.
Since the Palestinian uprising began 30 months ago, Hamas has claimed responsibility for dozens of attacks against Israelis, including many suicide bombings.
Residents said two Israeli F-16 planes flew low over the city just before the air strike. A few minutes later, helicopter gunships went into action.
The Israeli warplanes appeared to be targeting a car, but their first missile missed the target, witnesses said.
Some reports say bystanders and a house were hit in the raid.
A month ago, one of the group's founders, Ibrahim al-Maqadma, was killed in a similar attack.
Israel has in the past defended its policy of targeting suspected militants in Gaza and the West Bank.
Although Tuesday's was the first strike since the invasion of Iraq, Israeli forces have continued to conduct raids on the Palestinian territories, destroying buildings and arresting suspected militants.