Prime Minister Ehud Olmert announces the ceasefire
A volley of rockets has been fired into southern Israel from Gaza, hours after a unilateral Israeli ceasefire began.
At least four out of seven rockets landed near the town of Sderot, with no reports of injuries. Israel launched an air strike on Gaza in response.
The exchange puts an immediate strain on the ceasefire, which followed three weeks of fighting.
Palestinian medics say at least 50 bodies have been pulled from the rubble since Israel halted its offensive.
Israel says it will not set a timetable for withdrawing its troops, but Hamas said it would not accept any Israeli presence in Gaza.
"We can't talk about a timetable for withdrawal until we know the ceasefire is holding," said the Israeli prime minister's spokesman, Mark Regev.
"If there is a danger Hamas is going to deliberately torpedo the ceasefire, and we will have to reinitiate offensive actions against Hamas, for that reason we have to be reticent about withdrawing our forces," he said.
The stopping of rocket-fire had been a chief aim of the military campaign.
Israeli troops killed a Palestinian near the southern Gazan town of Khan Younis on Sunday morning, reports from Gaza said. If confirmed, the death would be the first fatality since the ceasefire began.
At least 1,300 Palestinians, according to Palestinian sources, and 13 Israelis have been killed since Israel launched its offensive on 27 December.
Shortly before the rockets fell, Israeli troops briefly traded fire with Hamas militants in the north of the Gaza Strip after coming under attack, Israeli military officials said.
Israeli Prime Minister Ehud Olmert said the latest attacks "again proved that the ceasefire is fragile and it has to be reassessed on a minute-by-minute basis".
Heads of state from across Europe are joining Egyptian President Hosni Mubarak, Palestinian Authority leader Mahmoud Abbas and UN chief Ban Ki-moon at the Egyptian resort of Sharm El-Sheikh for a summit aimed at shoring up the ceasefire.
They will discuss how to make the ceasefire durable and respected by Hamas, how to get aid to Gaza and beginning the process of rebuilding there.
But the BBC's Laura Trevelyan, who is at the resort, says with neither Israel or Hamas attending, there are questions about how much can be achieved and whether this will amount to more than a gigantic photo opportunity by those who want to help resolve the conflict .
The rockets were fired at about 0900 (0700 GMT), Israeli police said.
Israeli aircraft struck the militants who launched the rockets from the northern Gaza town of Beit Hanoun, the military said.
Hours earlier, Prime Minister Olmert told the nation that Israel was halting its offensive whose goals "have been more than fully achieved".
Rockets fired despite ceasefire
In a televised address, Mr Olmert warned militants in Gaza that if they "decide the blows they've been dealt are not sufficient and they are interested in continuing the fight, Israel will be prepared for such and feel free to continue to react with force".
The ceasefire came into effect at 0200.
Hamas has rejected the move, saying any continued Israeli presence in Gaza would be regarded as an act of war.
"The occupier must halt his fire immediately and withdraw from our land and lift his blockade and open all crossings and we will not accept any one Zionist soldier on our land, regardless of the price that it costs," Hamas spokesman Farzi Barhoum said, shortly before the ceasefire began.
Mr Abbas said the ceasefire was "important and necessary but insufficient", and called for a complete withdrawal of Israeli troops from Gaza.
Israel has begun pulling some of its troops out of the territory, says the BBC's Katya Adler in Jerusalem.
But it says others will remain for now and strike back if Israel continues to come under attack.
The US has welcomed the ceasefire, saying it "expects that all parties will cease attacks and hostile actions immediately".
Secretary General Ban expressed relief, saying the ceasefire should be "the first step leading to the full withdrawal of Israeli troops from Gaza".
Aid organisations have expressed concern that crossings into Gaza will not reopen fully unless Hamas is committed to a ceasefire.
BBC Middle East editor Jeremy Bowen says the question now is whether Hamas decides to lick its wounds and regroup - or whether it gambles on dragging Israel into a war of attrition.
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