Israel was still hunting for up to four gunmen who on Monday infiltrated the Egyptian border and staged a deadly ambush, killing one Israeli and sparking a firefight which left two militants dead.
The incident began around 6:00 am (0300 GMT) when a group of up to six gunmen opened fire towards a convoy of vehicles carrying Israeli construction workers to a site where they are building part of the vast border fence, the army said.
"Fire was opened at Israeli workers during routine construction work on the security fence between Israel and Egypt," a spokeswoman for the army said, indicating troops had returned fire killing two of the gunmen.
Another Israeli official confirmed an Israeli civilian construction worker was also killed in the ambush.
The remaining three or four gunmen fled the scene, with troops sealing off the area and mounting a massive manhunt to find them, the army said.
"Three or maybe four terrorists are still inside Israeli territory and we are currently trying to find them," the spokeswoman said, indicating that the army had declared the area a closed military zone and sealed off route 10 and 12.
The army also declared an alert in Kadesh Barnea, Nitzana and Be'er Milcha, three frontier villages which lie very close to where the attack took place.
The site of the ambush lies some 30 kilometers (18 miles) from the southernmost point of the Gaza Strip.
General Yoav Mordechai, the army's official spokesman said a "group of terrorists" had infiltrated Israeli territory along the border and staged an ambush for the convoy.
"These terrorists opened fire and used explosive devices and also apparently used anti-tank missiles against vehicles which were transporting workers who were building the security fence along the border," he told Israel's army radio.
"Soldiers then arrived at the scene and opened fire."
"All the sector where the incident took place has been closed and we are carrying out searches to ensure there are no more terrorists in Israeli territory," he said.
The border incident came just 48 hours after two rockets were fired from Sinai into southern Israel, hitting close to the Negev desert town of Mitzpe Ramon and near Ovda, which lies some 40 kilometers (25 miles) north of Eilat.
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