Three militants were shot dead by Israeli forces operating in the West Bank town of Nablus, after troops backed by armoured vehicles surrounded a Palestinian security compound, medics quoted by Reuters said.
Two Palestinians were later shot dead in Nablus.
Two days after Prime Minister Ehud Olmert vowed to fight the Palestinians until "terrorism stops", troops moved into Maghazi refugee camp in central Gaza in a new incursion aimed at targeting "terror infrastructure", a spokeswoman said.
Ten killed in Gaza
Ten Palestinians, including three from the armed wing of Hamas, were killed in the central Gaza incursion in which around 70 people were wounded.
Four civilians died when an Israeli tank shell exploded in a built-up area, damaging nearby houses as ground troops entered the northern and eastern edges of Maghazi, medical sources said.
Wounded Palestinians crowded the hall of the nearby Al-Aqsa hospital as overwhelmed doctors struggled to process the casualties, the majority of them civilians, as paramedics ferried in the injured under fire.
Dr Ibrahim al-Mussadder reported shooting on ambulances, saying one driver lost his leg to shrapnel from an Israeli tank shell, as witnesses said Palestinian gunmen were hunkered down in the deserted streets of Maghazi.
Five Israeli soldiers were wounded when they met with resistance from Palestinian gunmen.
Tunnel strikes
The air force also carried out strikes on armed cells and a tunnel being dug with the intention of "smuggling weapons and terrorists into Israel", an Israeli spokesman said.
Bulldozers were digging up farmland and Israeli soldiers had requisitioned some buildings as shooting reverberated around the area, an AFP reporter said.
EU foreign policy chief Javier Solana visited Gaza City and held talks with Palestinian president Mahmud Abbas yesterday, calling for an end as soon as possible to "the tragedy" in the Middle East.
The situations in Gaza and Lebanon, however, were separate and should not be mixed together, he said after the meeting.
Nabil Abu Rudeina, Mr Abbas's spokesman, said the Israeli "escalation" in Maghazi and Nablus was only "creating obstacles to efforts to calm the situation".
International appeals for restraint have fallen on deaf ears and a UN resolution urging Israel to stop the offensive was vetoed by the United States.
In a speech to parliament, Palestinian prime minister Ismail Haniya accused Israel of trying to "completely reshape" the Middle East through its offensives.
Ground troops have been operating inside the Gaza Strip since June 28, when troops rolled back into the territory in a bid to retrieve Shalit, a corporal whose capture sparked the worst Israeli-Palestinian crisis in months.
At least 96 Palestinians and one Israeli soldier have been killed since
Israel's assault in Gaza intensified on July 5, with forces currently on the ground both in the centre and southern part of the territory.