At least 18 Palestinians, including at least 13 militants, have died in an Israeli raid in the Hamas-controlled Gaza Strip, reports say.
Dozens of Palestinians were wounded in a morning of fierce clashes
Medical sources and witnesses said the deaths came after Israeli tanks pushed into eastern suburbs of Gaza City.
A farm worker in southern Israel was killed by Palestinian fire from Gaza.
It is one of the deadliest days of violence in Gaza in months. Israel launches frequent raids which it says are aimed at preventing rocket fire.
The dead militants included a son of Mahmoud Zahar, senior leader of the militant Islamist Hamas group in Gaza, the group said.
Reports say 48 people were also injured.
The violence comes a day after Israeli and Palestinian Authority negotiators began talks on core issues in the Israeli-Palestinian conflict - borders, Jewish settlements, Jerusalem and Palestinian refugees.
Hamas, which is excluded from - and rejects - the talks, ousted Palestinian Authority President Mahmoud Abbas's Fatah movement from Gaza by force six months ago.
The raid began when an Israeli undercover army unit targeted a house in the Zeitoun area used to launch rockets at Israel, but the Israelis were spotted by Palestinian gunmen who opened fire.
An Israeli army spokeswoman said the troops shot at a car carrying armed Palestinians during the operation and opened fire at another group of armed men.
More than 100 Palestinians, most of them militants, are reported to have been killed by Israeli fire in Gaza since Israel and the Palestinian Authority formally relaunched peace talks in late November.
The US-sponsored process was bolstered last week by the first presidential visit to Israel and the occupied West Bank by George W Bush, who predicted a peace treaty within a year.
"This is one of the results of the Bush visit. He encouraged the Israelis to kill our people," said Mr Zahar as he viewed in a Gaza hospital the body of his son Hussam.
He was accompanied by his one remaining son. Another son was killed in a botched Israeli assassination attempt against Mr Zahar in 2004.
He vowed Hamas would respond "in the appropriate way".
"We will defend ourselves by all means," he said.
Hours after the Gaza City raid Hamas claimed to have fired 17 mortars at two small border crossings with Israel and three rockets at the Israeli town of Sderot, the first time in several months that Hamas has targeted the town.
Israel said two rockets were fired at the town and rescue officials reported that four people were lightly injured in the attacks.
The 20-year-old Ecuadorian national was working in a field near the Gaza border when he was killed by a Palestinian sniper, the Israeli army said.
"The shooting... demonstrates the necessity of the defensive measures the military is carrying out with pinpoint operations," said Israeli military spokeswoman Avital Leibovich.
Mr Abbas condemned Israel's actions as "a massacre, a slaughter" and warned that they would not bring peace.