Palestinian officials say an Israeli airstrike killed two militants Sunday after militants fired a barrage of rockets at Israel, wounding one person.
The Israeli army says it struck a rocket-launching cell in the northern Gaza Strip.
Those killed were identified as members of Hamas. The group fired rockets at Israel for the first time in more than one year on Saturday after eight Palestinian civilians were killed in an explosion on a Gaza beach.
Palestinians blame Israel for the blast. Israeli authorities say they are trying to determine if the explosion was caused by an artillery shell went astray.
The military wing of Hamas says it will fire more rockets until the southern Israeli town of Sderot is a ghost town.
Commenting on the exchange of attacks, Palestinian legislator Saeb Erekat warns violence will just bring more violence.
The escalating violence came as Palestinian President Mahmoud Abbas Saturday set July 26 as the date for a referendum on establishing a Palestinian state alongside Israel.
Hamas, which is officially sworn to Israel's destruction, immediately rejected the referendum call. Prime Minister Ismail Haniyeh, a Hamas leader, met with Mr. Abbas Saturday to discuss the impasse.
Some information for this report was provided by AFP, AP and Reuters.