A suspected Palestinian gunman opened fire on a kibbutz in northern Israel late Sunday, killing at least five people, two of them children.
The attack at Kibbutz Metzner, close to the West Bank, came just hours after Israeli forces claimed to have foiled a double suicide bombing attempt in the same area.
Israeli security forces were still in pursuit of the gunman, who fled the scene after the shooting.
Police and army, backed by a helicopter, used flares to light up the area inside Israel, not far from the Palestinian self-rule area of Tulkarem in the West Bank.
Residents of the kibbutz were ordered to stay inside their homes.
One resident told reporters that members of the community turned off their lights and shut their doors when they heard the shooting.
First aid teams that had rushed to the scene of the attack were barred from entering the kibbutz for more than an hour, as Israeli security forces feared that the gunman was still inside.
The al-Aqsa Martyrs Brigades of Palestinian leader Yasser Arafat's Fatah faction claimed responsibility for the attack.
David Baker, a spokesman for Israeli Prime Minister, Ariel Sharon, lashed out at the Palestinian leadership for failing to stop the killings of Israelis. He says "Israelis in their homes were brutally targeted by Palestinian terrorists".
Earlier, in an area just outside the kibuttz, a car exploded killing the two Palestinian occupants, just as police moved to halt the vehicle.
It was not clear whether the Palestinians had detonated the explosives laden car intentionally or by accident. Israeli security officials believe the occupants were on their way to carry out a suicide bombing.
Hours after the shooting attack, Israeli helicopters fired rockets at a large metal workshop in Gaza City.
Israel has frequently targeted such workshops, saying Palestinian militants used them to manufacture weapons.