Arafat's seaside compound was hit for the first time
Fifteen Palestinians, including 12 policemen, were killed as Israeli forces took swift and deadly reprisal across Gaza and the West Bank overnight for the killing of six Israeli soldiers.
After an Israeli security cabinet meeting on Wednesday, Prime Minister Ariel Sharon approved what officials called a "new action plan."
Israeli reprisals resumed in the daytime, when Apache helicopters launched missiles at a Palestinian police post in al-Maghazi refugee camp in the central Gaza Strip, while tanks moved into the area, Palestinian sources said.
Israeli troops opened fire at a police post and several houses with machine guns from inside the helicopters, according to witnesses.
Nearby, the Israeli army said soldiers killed two "suspected terrorists" who were about to fire mortars into Israel north of the Kissufim crossing.
Tough line
Mr Sharon's spokesman Raanan Gissin did not specify the new measures agreed by the security cabinet but said the night-time strikes "might be a small example of the kind of operations that would come to end the terror."
The BBC's James Reynolds in Jerusalem says in practice it will mean more attacks against security targets and militants.
Our correspondents say the new plan will please hardliners within Mr Sharon's government, who have campaigned for tougher action, but disappoint moderates who are urging a return to peace talks.
For their part, Palestinian leaders have called for an emergency session of the United Nations Security Council to address the upsurge in violence.
Reprisals
Yasser Arafat's compound in the West Bank city of Ramallah - where he is under virtual house arrest -was hit.
Warships, Apache helicopters and F-16 fighter jets also pounded his seaside headquarters in Gaza City.
Four members of Mr Arafat's Force 17 were killed in the bombardment, which caused people living nearby to flee in panic.
"Israel is starting a new stage of its war against the Palestinians. Its military escalation of last night will lead to an explosion," said senior Palestinian official, Nabil Abu Rudeina, who urged the world community to intervene.
Over the last few days, the Israeli army has suffered its heaviest losses since the Palestinians launched their uprising in September, 2000.
Israeli right-wingers want the army to reoccupy all the Palestinian territories.
But correspondents say that many Israelis feel the current campaign of military action is failing to provide security for Israel, just as diplomacy fell short in previous years.