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Israel and militants exchange fire

Gaza militants have bombarded southern Israel with rockets and mortars, drawing retaliatory Israeli air strikes in an escalation of the worst hostilities in the area since Israel went to war in the Palestinian territory two years ago.

Israeli Prime Minister Benjamin Netanyahu vowed decisive action against militants and suggested that future operations would not be surgical.

"No state would tolerate ongoing rocket fire on its cities and its citizens, and the state of Israel obviously will not tolerate it," he said.

Gaza's Hamas rulers said their prime minister had been in contact with militant factions trying to keep the post-war truce from unravelling. But in the meantime, the Gaza interior ministry announced that it had evacuated security installations and scaled back the number of security forces on the street to lessen their risk of becoming targets.

The Islamic militant group said it fired rockets at four Israeli cities to avenge Israel's killing of eight militants and civilians in Gaza the day before.

The group said one of its fighters was killed in an Israeli air strike, and Israeli police said an Israeli civilian was wounded by rocket shrapnel in southern Israel's largest city, Beersheba.

A small faction allied with Gaza's ruling Hamas militant group claimed responsibility for a volley of mortars that struck Israel.

The killing of three children and their uncle in what Israel called a mistaken shelling dramatically escalated the recent violence. Dozens of weeping women dressed in black gathered at the house of three of the victims.

The civilians and the militants killed were buried in a joint funeral in Gaza City, their coffins lined up in a row in a mosque for pre-burial prayers. Dozens of armed men, including relatives, fired in the air as the bodies were brought out.

Israel and Hamas have largely observed a truce since the Israeli military offensive in Gaza ended in January 2009. But with the ceasefire fraying in the past week, Mr Netanyahu threatened to respond vigorously to the attacks from Gaza.

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