The Palestinian militant group Islamic Jihad says it is canceling its agreement with the Palestinian Authority to stop attacks against Israel.
The armed wing of the Islamic Jihad group says in a statement it is scrapping a deal with Palestinian leader Yasser Arafat to end its attacks on Israelis.
The group says it will no longer honor its understanding with the Palestinian Authority and its security services because Israel is continuing to harm Palestinians.
The statement came hours after Israeli bulldozers and armored vehicles rumbled into the Rafah refugee camp in Gaza.
The bulldozers flattened dozens of houses, and left at least 100 families homeless.
The soldiers later pulled out of the camp, leaving behind huge piles of rubble, twisted metal and broken furniture where homes once stood.
The army says it destroyed the buildings because they were being used by Palestinians to fire on soldiers and smuggle weapons from Egypt.
The move came the day after two Palestinian gunmen, who lived in the Rafah camp, attacked a nearby army post inside Israel, killing four soldiers. The two gunmen died during the assault.
The militant Islamic group Hamas claimed responsibility for the incident, which shattered a few weeks of relative calm following Mr. Arafat's call for an end to suicide bombings and armed attacks against Israelis.
The Palestinian Authority condemned the killing of the soldiers, but Israeli Prime Minister Ariel Sharon says Mr. Arafat is responsible for the incident.
Mr. Sharon says Israel will review its policy toward the Palestinians following the latest bloodshed and the seizure of a freighter carrying a large amount of weapons Israel says were being shipped to the Palestinians.
Israeli commandos last week found 50 tons of munitions on board, including rockets and anti-tank weapons.
Palestinians have denied involvement in the shipment, but the boat's captain says he received his orders from officials in the Palestinian Authority.
The continuing violence is threatening U.S. led efforts to broker a permanent truce to end more than 15 months of fighting between Israel and the Palestinians.
Earlier this week, U.S. mediator Anthony Zinni left the region on a hopeful note, saying both sides were trying to make a cease-fire hold.