Palestinian militants fired more than 20 rockets at Israel, hours after Israel cut electricity supplies to Gaza by about one percent. It was the first time that Israel reduced electricity from one of its own power plants to Gaza, though fuel cuts have prompted blackouts in the impoverished territory in the past.
The electricity cuts are aimed at halting the daily Palestinian rocket attacks that have terrorized Israeli communities on the Gaza border.
"Israel is applying pressure on the terrorist organizations in Gaza," said Israeli spokesman Arieh Mekel. "We believe that no government would have acted differently; any government has the ultimate responsibility to protect its citizens."
The Islamic militant group Hamas, which rules Gaza, said it would not be intimidated by the sanctions. Hamas refuses to recognize Israel and it believes armed resistance is the only way to liberate Palestine.
Israel has tightened sanctions on Hamas since the group seized control of Gaza in June, defeating the Fatah forces of western-backed Palestinian President Mahmoud Abbas.
The Abbas government in the West Bank, which is involved in peace talks with Israel, also condemned the electricity cuts.
"This is a collective punishment that absolutely should not be tolerated by anyone in the international community," said Palestinian negotiator Saeb Erekat.
The tension in Gaza is overshadowing peace talks that resumed in December after a seven year break. Speaking in the United States, Palestinian Prime Minister Salam Fayyad said it is unlikely that President Bush will achieve his goal of a peace agreement by the end of the year.