Palestinian militants fired three rockets at Israel overnight prompting retaliatory fire from Israel, with the exchanges threatening a Hamas-declared truce.
They came after Prime Minister Benjamin Netanyahu said he was prepared for further military action in Gaza, at a highly sensitive time ahead of an April 9 Israeli general election.
The latest severe flare-up began early Monday when a rare long-distance rocket fired from the Gaza Strip hit a house north of Tel Aviv, wounding seven Israelis.
The Israeli military hit back with a series of air strikes across the enclave and Palestinian militants launched a further barrage of rockets. No casualties have been reported.
Calm prevailed throughout Tuesday, with Hamas claiming Egypt had brokered a ceasefire, but as night fell Israel said a rocket was fired from Gaza.
In response, a military statement said, "fighter jets struck several terror targets in the southern Gaza Strip, including a Hamas military compound and a weapons manufacturing warehouse in Khan Yunis."
A Palestinian security source in Gaza said an air strike hit a Hamas military base in Khan Yunis, in southern Gaza.
Shortly before midnight (2200 GMT Tuesday), the army reported a second rocket attack, this time on an industrial zone on the edge of the Israeli coastal city of Ashkelon.
Hamas, its main Gaza ally Islamic Jihad and smaller groups took pains to disassociate themselves from the incident.
"The rocket that hit near Ashkelon was the work of an individual and the factions are committed to calm" as long as Israel is, they said in a joint statement.
Early on Wednesday, Israel struck back.
"Fighter jets and aircraft struck several terror targets in the southern Gaza Strip in a Hamas military compound in Rafah," an army statement said.
Before dawn, another rocket was fired at Ashkelon but was brought down by Israeli air defences, the army said.
Netanyahu, who cut short a high-profile visit to the United States to take charge of Israel's response, had earlier said: "We are prepared to do a lot more.
"We will do what is necessary to defend our people and to defend our state," he told the annual conference of US pro-Israel lobby group AIPAC by satellite link.
The army said that after a meeting with Netanyahu -- who is also defence minister -- chief of staff Lieutenant General Aviv Kohavi ordered more forces be sent to the southern border region.
Kohavi also "approved completing the summoning of additional reserve soldiers," it said in a statement, without providing further details.
- Avoid fourth war -
As polling day looms, the prime minister is widely believed to want to avoid the unpredictable consequences of what would be Israel's fourth war with Gaza militants since 2008 but he faces heavy political pressure.
Saturday marks the first anniversary of regular protests along the Gaza-Israel border that have drawn a deadly response from the Israeli army and large demonstrations are expected for it.
Netanyahu said earlier Tuesday that Israel's response to the Gaza rocket fire was the largest-scale attack on Hamas targets since the 2014 conflict between them.
Israel closed its border crossings with Gaza to both people and goods, and reduced the offshore limit it imposes on Gaza fishermen.
It did not confirm the ceasefire announced by Hamas.
The Israeli army blames Hamas for the rocket that struck north of Tel Aviv on Monday.
A Hamas official, however, denied the group was responsible, saying it may have been fired by accident or even due to "bad weather".
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