Militants fired two rockets from Egypt's Sinai Peninsula at the southern resort city of Eilat on Wednesday, Israel said, in an attack claimed by Jihadists to coincide with Palestinian Prisoners' Day.
It was the first rocket attack on the Red Sea resort in eight months, striking inside the city but causing no casualties, police said.
The army said the rockets were fired from the Sinai, but there was no confirmation from Cairo, where a senior military official said troops were still investigating the incident.
The rockets slammed into the city just hours before Palestinians across the West Bank and Gaza began gathering for a series of rallies in solidarity with the 4,713 prisoners held in Israeli jails.
In a statement posted online, a Gaza-based Salafi group called the Mujahedeen Shura Council claimed hitting Eilat with two Grad rockets as a "response to the continued suffering of the downtrodden prisoners in Israeli jails."
The group, which has fired rockets from Gaza into Israel, said the attack was in response to the cancer-related death in custody of long-term inmate Maisara Abu Hamdiyeh, and to Israel's fatal shooting "in cold blood" of two teenagers during a subsequent protest.
"We decided to direct an appropriate strike on the enemy in the language it knows well, and in a location it would not expect or be prepared for," it said.
Israel's deputy defence minister, Danny Danon, said that the militants were a threat to the Egyptian government as well as to Israel's security.
"The Egyptian interest is identical to the Israeli interest; to fight the extremist forces in the Sinai," he told publicly-owned Channel One TV.
An Israeli defence official told AFP that warnings of a possible rocket attack from Sinai had prompted the military to move a battery of its vaunted Iron Dome anti-missile system to the Eilat area earlier this month.
"There were warnings of possible firings, and they decided to shift the system to there," he said.
An Israeli security source said the system "did not intercept the incoming rockets" on Wednesday for unspecified "operational reasons."
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As news of the attack emerged, Prime Minister Benjamin Netanyahu, who was in London for the funeral of Britain's ex-premier Margaret Thatcher, had phone consultations with security officials on "how to react," his office said.
Meanwhile, Palestinians across the West Bank and Gaza Strip marked Prisoners' Day with a series of low-key rallies, as inmates themselves staged a hunger strike.
In the West Bank city of Ramallah, around 600 relatives of prisoners gathered for a sit-in in the rain at Arafat Square, while around 1,500 people turned out in the northern city of Nablus, AFP correspondents said.
A few hundred people rallied in the southern West Bank city of Hebron, with similar numbers joining a march through Gaza City that ended at the offices of the International Committee of the Red Cross, correspondents said.
Some 3,000 Palestinians in Israeli jails refused breakfast as part of a one-day hunger strike to mark Prisoners' Day, an Israeli prison official said.
According to the Israeli rights group B'Tselem, there are 4,713 Palestinians prisoners in Israel, including 169 in administrative detention where they can be held without charge for renewable periods of up to six months.
Of that number, 10 are women and 235 are aged 14-18, B'Tselem said.
Eilat, which lies on the northernmost point of the Gulf of Aqaba, has been hit by intermittent rocket fire from Sinai over the past few years.
So far, no one has been injured there but, in August 2010, a projectile hit the nearby Jordanian city of Aqaba, killing a taxi driver.
The last time Eilat was hit was in August, when another Salafist group called Ansar Beit al-Maqdis fired two Grad rockets at the city.
Since the ouster of former Egyptian president Hosni Mubarak in February 2011, Israel's border with Sinai has seen multiple security incidents, with militants using the lawless peninsula to stage attacks on the Jewish state.
The most serious incident was in August 2011, when gunmen infiltrated southern Israel and staged a series of ambushes that killed eight Israelis.