The violence began late Tuesday when Israeli forces entered Gaza to destroy what the army said was a tunnel being dug near the border to kidnap Israeli troops, reported the Associated Press.
Israeli defense officials said under condition of anonymity that they had discovered a 300-yard tunnel several days ago and concluded it was going to be used for abductions. Hamas is believed to still be holding an Israeli soldier that militants captured in a cross-border raid more than two years ago.
After the incursion, Hamas gunmen battled Israeli forces, killing one Hamas fighter and prompting mortar fire at nearby Israeli targets.
An Israeli airstrike then killed five Hamas militants preparing to fire the mortar rounds.
The rockets were in "response to Israel's massive breach of the truce," said Hamas spokesman Fawzi Barhoum, according to the AP.
The Israeli military said 35 rockets were fired into southern Israel, including one that reached the coastal city of Ashkelon, about 10 miles north of Gaza.
Police said that rocket landed in an empty area and there were no reports of injuries or property damage, the AP reported.
Despite the fighting, Israeli and Hamas officials were loathe to say the truce that went into effect in June was over and both expressed hopes that calm would be restored.
Egypt has been working to extend the cease-fire beyond its six-month duration and reconcile Gaza's Hamas government and Palestinian President Mahmoud Abbas of the Fatah faction at a summit in Cairo next week, according to Reuters.
Secretary of State Condoleezza Rice travels to the region on Thursday, the news agency reported. President Bush has been pressing for an Israeli-Palestinian peace agreement before the end of his term.
President-elect Barack Obama has said resolving the Mideast conflict would be a priority of his administration.