Most Israeli troops have pulled out of northern Gaza after days of fighting that has left more than 100 people dead and drawn protest worldwide.
The Palestinian militant group Hamas claimed victory over Israeli forces and mounted a rally in Gaza City.
Five militants were killed in Israeli air strikes overnight, while several other Palestinians were found dead as Israeli forces withdrew.
Israel said the operation was launched to defend itself against rocket attack.
Medical sources say at least 112 Palestinians have been killed since Wednesday, when Israel intensified its campaign in Gaza.
Three Israelis have died - a civilian killed by a rocket on Wednesday, and two soldiers since.
There has been widespread international alarm at the scale of the Israeli action and West Bank-based Palestinian President Mahmoud Abbas has formally suspended contacts with Israel in protest.
On Monday, Israeli armoured vehicles left the Jabaliya refugee camp in northern Gaza, scene of some of the bloodiest ground fighting.
Israeli Deputy Prime Minister Haim Ramon told Army Radio: "This operation has run its course. The main goal of the Israeli government... is to end the firing [of rockets] at targets in the south.
"There were dozens of deaths among the Hamas terrorists - this is certainly deterrence."
Israeli aircraft made at least eight different strikes early on Monday, killing five Palestinian militants, Palestinian sources said.
However, a spokesman for militant group Hamas told Reuters: "The enemy has been defeated."
And the barrage of rockets fired at Israel was not stopped, with more than 25 being launched on Sunday, and several reaching Ashkelon, a city of nearly 120,000 people, the Israeli military said.
At least two more rockets struck Ashkelon on Monday after the Israeli withdrawal.
Hamas called a rally in Gaza City following the withdrawal, while a number of funerals were scheduled for those killed in the fighting.
In the West Bank, there have been demonstrations against the Israeli raids in Hebron, Bethlehem, Qalqilya, and the villages around Ramallah.
A number of protesters were reported to have been injured in clashes in Hebron, and a teenager was shot dead near Birzeit university in Ramallah.
Israeli forces closed off the village of Nea'leen near Ramallah, while they carried out an operation.
'It needs to stop'
The administration of US President George W Bush joined international calls for a halt to the fighting in Gaza, saying: "The violence needs to stop and the talks need to resume."
Rocket attacks injured at least three Israeli civilians on Sunday
With US Secretary of State Condoleezza Rice due to arrive for talks with the Israeli and Palestinian leaders, a US state department official said: "We're encouraging Israel to exercise caution to avoid the loss of innocent life."
The European Union criticised what it called Israel's ''disproportionate use of force'' and also demanded an immediate end to Palestinian militant rocket attacks on Israel.
Prime Minister Recep Tayyip Erdogan of Turkey, one of Israel's few Muslim allies, said there was "no humane or legal justification for the attacks on Gaza''.
Mr Abbas's spokesman, Nabil Abu Rudeina, blamed Israel for the suspension of talks on all levels.
"In light of the Israeli aggression such communication has no meaning," he said.
A spokesman for Israel's Foreign Minister Tzipi Livni, Arye Mekel, said the Palestinian decision was a mistake and expressed hope negotiations would resume.
Mr Abbas restarted the talks after a conference in November in the US city of Annapolis.