Israeli missiles slammed into a Palestinian naval base in the Gaza Strip Saturday in the latest retaliation for a weapons smuggling operation and a deadly attack on Israeli troops.

Israeli warships launched shells at the harbor in Gaza destroying a patrol boat and a fuel tank, sending flames leaping into the air.

Navy commandos also blew a hole in a Palestinian vessel that was docked there.

The Israeli military says the base was targeted because Palestinian naval officers were involved in smuggling weapons, and an attack earlier this week on an army post that left four soldiers dead.

Troops also blew up a tunnel in Gaza the army says was being used to smuggle weapons from Egypt.

The moves came hours after Palestinians announced they have arrested three senior officials for alleged involvement in an attempt to bring arms into the Gaza Strip.

Last week, Israel seized a freighter containing a large amount of weapons it charges were being shipped to the Palestinians.

The arrests came after U.S. Secretary of State Colin Powell backed Israel's demand that Palestinians arrest those involved in the operation.

Israeli intelligence officials briefed members of the Bush administration about the smuggling attempt.

Secretary Powell says the information makes it clear there are connections between the freighter and the Palestinian Authority.

The Palestinians deny that Chairman Yasser Arafat or members of the authority were involved in the arms shipment.

In another incident, the Palestinians say a number of people were wounded by Israeli fire in Rafah, in the southern Gaza Strip.

The Israeli military says it fired machine guns at an area where Palestinians were throwing grenades at Israeli troops.

Israeli bulldozers continued to destroy the runway of the Palestinian-controlled airport in the Gaza Strip. The airport is seen as a key symbol of Palestinian aspirations for statehood.

Earlier, bulldozers flattened dozens of homes in Rafah, leaving hundreds of Palestinians homeless.

The accusations of arms smuggling and continuing violence are threatening to undermine U.S.-led efforts to broker a permanent cease-fire to end more than 15 months of Israeli-Palestinian bloodshed.