Israeli air strikes on Gaza killed 16 Palestinians, including a top militant, medics said early Sunday, as militants fired 100 rockets into the Jewish state.
It was the deadliest violence between Israel and the Palestinians across the Gaza border in more than three years, prompting the United States and the European Union to urge both sides to restore calm.
But Palestinian militants vowed to avenge their dead and Israel threatened to hit back if its citizens came under renewed rocket attacks from the coastal enclave.
Medics said three Palestinians were killed in air strikes on Saturday: one near the southern town of Rafah on the border with Egypt and two in Khan Yunis. One more was killed early Sunday in a fresh strike on the east of the Gaza Strip.
That death brought to 16 the total number of Palestinians killed since Friday, medics said, adding that at least 27 Palestinians had been wounded, five seriously.
The Israeli army said more than 100 rockets and mortar rounds had been fired into Israel from Gaza over 24 hours. Four people, three of them Thai labourers, had been wounded inside Israel, media and Israeli medics said.
Residents told Israeli radio and television how they had been told to stay close to bomb shelters and that large public gatherings had been banned, forcing the cancellation of several football matches on Saturday.
Schools in southern Israel were also due to remain closed on Sunday.
The army said it had attacked several targets inside Gaza including "a terrorist squad" planning to fire rockets.
The air raids had been "in direct response to the rocket fire at Israeli communities in southern Israel," it said.
One strike killed the head of the Popular Resistance Committees, Zohair al-Qaisi, and fellow member Mahmud Hanani, the ultra-hardline militant group said. The PRC threatened reprisals for Qaisi's death.
The Al-Quds Brigades, the military wing of Islamic Jihad, said the air strikes had killed 10 of its members.
This was the deadliest 24-hour period on the Gaza-Israel border since a devastating Israeli assault in December 2008-January 2009 aimed at halting Palestinian rocket attacks.
Thousands of mourners, many chanting calls for revenge and firing automatic weapons into the air, buried 12 Palestinians on Saturday.
Palestinian security officials said that at one funeral, east of Gaza City and close to the Israeli border fence, Israeli troops had opened fire on mourners, wounding four people.
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The army had no immediate comment.
Defence Minister Ehud Barak said "the Israeli army will hit anyone planning to attack Israeli citizens." He expected the violence to continue another day or two, he added.
Barak said Israel would continue to develop the capabilities of the Iron Dome defence system, designed to intercept rockets and artillery shells fired from a range of between four and 70 kilometres (three and 45 miles).
The Israeli military said Qaisi "was among the leaders who planned, funded and directed" a deadly cross-border attack into southern Israel from Egypt's Sinai peninsula last August that killed eight people.
The PRC militants killed on Friday night were also "planning a combined terror attack that was to take place via Sinai in the coming days," the military said.
Hamas, which rules Gaza, has maintained a tacit truce with Israel, but other Palestinian groups regularly fire rockets and mortars across the border, often sparking retaliatory air strikes.
The relatively small PRC is one of the most active.
"We are not committed to the truce; we will respond very strongly to this (Israeli) crime," Abu Ataya, a spokesman for the PRC's military wing, the Al-Nasser Salaheddin Brigades, told AFP.
Hamas also branded the killings a crime but later said it had renewed contact with Egypt in a bid to negotiate an end to the violence.
"We really want to put an end to the (Israeli) aggression in the Gaza Strip and the contacts that we have made with Egypt are to that end," Hamas spokesman Taher al-Nounou told AFP.
Hamas was prepared to help broker a ceasefire, "not a surrender", but it would have to be applied on both sides simultaneously, he added.
President of the Palestinian Authority Mahmud Abbas also discussed renewing the ceasefire in talks with Hamas's exiled leader Khaled Mechaal and the leader of Islamic Jihad Ramadan Abdallah Challah, the Palestinian press agency Wafa reported.
The PRC and Al-Aqsa Martyrs Brigades, an armed offshoot of Palestinian president Mahmud Abbas's Fatah movement, said they fired rockets into Israel on Friday.
The Palestinian Authority condemned Israel's retaliation, saying it would "escalate the circle of violence in the region."
The United States and European Union expressed similar concerns. "We call on both sides to make every effort to restore calm," said US State Department spokesman Victoria Nuland echoing an EU statement.
The Arab League accused Israel of carrying out a "massacre" and called for a tough stance from the international community against the Jewish state.