Hamas militants fired an anti-tank missile at an Israeli school bus, critically injuring a teenager, prompting the army to pound the the Gaza Strip, killing four and wounding more than 30.
After the missile slammed into the bus, the Palestinians lobbed at least 45 mortar rounds and several rockets into southern Israel, hitting a house, and the army responded by staging multiple raids across the enclave.
As the rockets flew over the border, Israel's Iron Dome short-range missile defence system intercepted a projectile heading for the southern port city of Ashkelon, in what was the first time such a system has ever been successfully used anywhere in a combat situation.
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The bus attack was claimed by the military wing of Hamas and was the first time an anti-tank missile from Gaza had hit a civilian target in Israel, prompting Israel to vow a harsh response.
"This situation will be contained," said Prime Minister Benjamin Netanyhau who was visiting the Czech Republic. "We will not shy away from taking all necessary action, offensive and defensive, to protect our country and its citizens."
Hamas's Ezzedine Al-Qassam Brigades, claimed responsibility, saying it was an "initial response" to Israel killing three of the group's leaders on Saturday, when an air strike hit their car in southern Gaza.
An Israeli military spokesman said that raid was a pre-emptive strike against militants planning to attack Israelis on holiday in the Sinai Peninsula during the coming Jewish festival of Passover.
The school bus attack, which was seen by Israel as a worrying escalation, was also condemned by the United States.
"We condemn the attack on innocent civilians in southern Israel in the strongest possible terms as well as ongoing rocket fire from Gaza," State Department spokesman Mark Toner said.
"We are particularly concerned about reports that indicate the use of an advanced anti-tank weapon in an attack against civilians," he said.
A spokesman for the Israeli medical services said a 16-year-old boy was critically wounded in the attack on the bus, which was passing the Nahal Oz kibbutz, just across the border from Gaza City's eastern flank. The bus driver sustained light injuries.
Television footage showed the yellow bus with the back end badly damaged and the windscreen blown out. A small teddy bear lay on the ground among shards of glass and pools of blood.
The bus had just finished dropping off dozens of youngsters.
Immediately after it was hit, militants in Gaza fired at least seven mortar rounds at the area, complicating efforts to evacuate the teenager and the bus driver, an AFP correspondent said.
By early evening, the army said at least 45 mortar rounds and rockets had slammed into southern Israel, one of which scored a direct hit on a house.
But one rocket aimed at Ashkelon was shot down by the multi-million-dollar Iron Dome system, which first went into operation on March 27.
As the rocket flew through the air, the interceptor missile streaked up into the sky to hit it, their two trails converging in an explosion, an AFP correspondent said.
A military source confirmed to AFP it was the first time Iron Dome had hit a rocket in actual combat.
Following the surge in violence, the Israeli military hit back immediately, shelling an area in eastern Gaza City and killing a 50-year-old man and wounding another five people, including a small child.
Air strikes hit two Hamas positions in and around Gaza city, and other raids hit targets in the southern cities of Rafah and Khan Yunis, killing another three people and wounding dozens more, eight of whom were injured when shell fragments hit an ambulance, Palestinian medical sources said.
Hamas said one of the dead was a member of it's armed wing. In total, some 34 people were wounded across the Gaza Strip.
A military spokeswoman confirmed that troops had launched multiple attacks on targets in Gaza, saying it "fired at places from which mortars are fired at Israel."
Over the past month, dozens of rockets have hit southern Israel, some reaching cities as far as 40 kilometres (25 miles) away, and prompting a series of retaliatory air strikes and raids.
So far, Israel's response has been muted.
Many believe the Jewish state is reluctant to be dragged into another bloody war with Hamas akin to Operation Cast Lead, the 22-day war which began at the end of 2008 that killed more than 1,400 people in Gaza and 13 Israelis.
