Israeli airstrikes killed several Palestinians in Gaza Friday, while Palestinians fired rockets into southern Israel, wounding several Israelis in the aftermath of the deadliest attack against Israelis in three years.

Palestinian militants in Gaza launched over two dozen rockets into Israel on Friday, the Israeli military said. At least six people were wounded in the city of Ashdod, Israeli media reported.

Another rocket, aimed at the city of Ashkelon, was intercepted by the new Israeli anti-missile system known as Iron Dome. 

Israeli aircraft struck several targets in Gaza, killing five Palestinian militants late Thursday and five more on Friday, including a senior member of the Islamic Jihad, according to Palestinian hospital officials. Two civilians were also reported dead.

The retaliatory strikes came after gunmen who appear to have originated in Gaza and crossed into southern Israel through the Egyptian desert ambushed civilian vehicles travelling on a remote road, killing eight people. Six were civilians, and two were members of Israeli security forces responding to the incursion.

The sudden spike in violence threatened to upset the already frayed ties between Israel and Egypt and escalate the conflict between Israel and Hamas in Gaza.

Israel's south has been equipped with early warning systems and bomb shelters over years of rocket fire from Gaza, and those measures have helped keep casualties low.

Israeli Prime Minister Benjamin Netanyahu visited some of the wounded in the hospital Friday. "We killed the head of the group that sent the terrorists, but this is just an initial response," he said. "We have a policy to extract a very heavy price from those that attack us and that policy is being implemented in the field."

Earlier in the day, the Israeli military's chief spokesman, Brig.-Gen. Yoav Mordechai, said it was "too early" to say that a broad escalation in Gaza was imminent.

"If we see that Hamas is choosing to escalate, we will not hesitate to expand the scope of our actions, respond in strength and exact a price from Hamas," he told Israel Army Radio on Friday morning.

Egypt lodges official complaint over 5 deaths

Egypt, meanwhile, registered an official complaint with Israel Friday over the deaths of five of its soldiers in fighting after the ambush targeting Israelis near the border between the two countries.

Egypt's official news agency blamed an Israeli fighter jet for shooting and killing four Egyptian soldiers and one policeman while chasing the militants behind Thursday's ambush in southern Israel.

An Israeli military officer said a suicide bomber, not Israeli soldiers, killed the Egyptian security forces. He said the attacker had fled back across the border into Egypt and detonated his explosives among the Egyptian troops. He spoke on condition of anonymity according to military regulations. Israeli media reported that some of the sniper fire directed at the Israeli motorists Thursday came from near Egyptian army posts and speculated that the Egyptian troops were killed in the crossfire.

It was not possible to reconcile the different versions.

"There was an exchange of fire between Israeli soldiers and terrorists on the Egyptian border following the deadly terror attack Thursday morning. We are investigating this matter thoroughly and will update the Egyptians," the Israeli military said.

Israel responded hours after the border attack with an airstrike in Gaza that killed five members of the Palestinian group that Israel said was behind it, an organization known as the Popular Resistance Committees. The dead included the group's leader.

A spokesman for the group, Abu Mujahid, would not confirm or deny responsibility for the attack inside Israel, but said militants would avenge the killing of the men in Gaza.

Hamas, which controls Gaza, denied any connection with the attacks but hurriedly evacuated all of its security facilities Thursday in anticipation of more Israeli retaliation. Those strikes continued through the night and past midday Friday, targeting what the military said were smuggling tunnels and sites used by gunmen.

Hamas officials said two children, 3 and 13, were killed in the Israeli strikes.

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Israeli police use a water canon to disperse a crowd of Palestinians outside Damascus Gate in Jerusalem's Old City on Friday. Dozens of Palestinians trying to reach the Al-Aqsa Mosque in Jerusalem for prayers during the Muslim holy month of Ramadan scuffled with police at one of the gates to the Old City. ((Sebastian Scheiner/Associated Press))

Also Friday, dozens of Palestinians trying to reach the Al-Aqsa Mosque in Jerusalem for Muslim prayers during the Muslim holy month of Ramadan scuffled with police at one of the gates to the Old City. The police were allowing access only to older Muslims in a measure police said is meant to prevent unrest.

The officers used a water cannon to disperse the crowd and made several arrests, police said. No injuries were reported.

Border attention

The violence in the south focused Israel's attention on its border with Egypt — 200 kilometres of mountainous desert with no fence for most of its length. Bedouin smugglers ferrying drugs and thousands of African asylum-seekers into Israel have crossed the border almost unimpeded for years.

Thursday's attack — the deadliest for Israel since a Palestinian gunman killed eight people in a Jerusalem religious seminary in 2008 — took place near Israel's popular Red Sea resort city of Eilat, currently at the height of the tourist season.

Though the desert outside Eilat showed signs of an increased military presence on Friday morning, the city itself appeared unaffected. Joggers and cyclists were visible along the beach.

Resident Zion Cohen, 53, said the steady stream of African migrants crossing the border with ease in recent years showed that an incursion like the one on Thursday was only a matter of time.

"What bothers me is the unbearable ease with which they cross the border and the knowledge that ... every day, every minute and every hour something can happen like yesterday," Cohen said.

A new fence is currently under construction, and the military says it will be completed by the end of 2012.

The attack came after a prolonged period without negotiations between Israel and the Western-backed Palestinian leadership in the West Bank. That deadlock has led the Palestinians to unilaterally seek recognition of statehood at the United Nations next month, a largely symbolic move opposed by Israel and the U.S.