Two Palestinians were killed and one was wounded on Thursday by an Israeli air strike in the northern Gaza Strip, a spokesman for the Hamas emergency services said.
The Israeli military confirmed the strike, saying the air force had targeted a "terrorist squad" that had opened fire on troops in an area near Gaza's northern border with Israel.
Emergency services spokesman Adham Abu Selmiya said the attack, which took place in Al-Sudaniyya near the seafront, had killed two and left a third person in moderate to serious condition.
"The martyrs were taken to Kamal Adwan hospital in Jabaliya," he told AFP, referring to a nearby town.
Abu Selmiya named the two men as Mohammed Abu Hanina and Nasser Eliyan and said the men were farmers working their land when the air strike hit.
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The attack occurred as both sides reported an exchange of fire between troops and gunmen near the border as an Israeli helicopter hovered overhead.
The Israeli military said its troops came under fire during "routine activity adjacent to the security fence in the northern Gaza Strip," and sustained damage to a vehicle.
"In response to the fire, IDF (Israel Defence Force) soldiers targeted the terrorist squad aided by IAF (Israel Air Force) aircraft. A direct hit was confirmed," a statement said.
The strike came after several days of calm in and around Gaza following a spike in violence at the weekend which left 12 Palestinian militants and an Israeli civilian dead.
Militant groups say they are observing an Egyptian-brokered truce agreement but have reserved the right to reply to any Israeli fire.
Israel says it will continue to act against any militants poised to fire rockets across the border.