Israel has launched air strikes on Gaza after gunmen killed seven Israelis in a series of attacks near the border with Egypt.
In the retaliatory air attacks on Gaza, five gunmen and a child were reported killed.
Earlier, squads of gunmen armed with heavy weapons and explosives crossed into southern Israel and attacked buses, cars and an army patrol in one of the boldest attacks in years.
Israel said the attackers were Palestinians from Gaza who crossed through Egypt's Sinai peninsula.
The attack stoked concerns that Palestinian militants might be exploiting instability in Egypt.
Within hours Israeli aircraft bombed Gaza in retaliation, and Gaza medical official Adham Salmia said five gunmen and one child had been killed in a strike on a private home.
The attacks on Israelis began at midday and lasted for three hours.
They came close together and appeared co-ordinated.
Israeli security forces said they tracked down some of the attackers and killed seven in a gun battle.
Three of the bodies were booby-trapped. There was no immediate word on whether any of the attackers were captured alive.
Israel said the gunmen started out from Gaza and made their way through Sinai, which borders both Israel and Gaza. Egypt and Hamas denied any involvement.
"The incident underscores the weak Egyptian hold on Sinai and the broadening of the activities of terrorists," Israeli Defence Minister Ehud Barak said.
It was the deadliest assault in Israel since a Palestinian gunman entered a religious seminary in Jerusalem in March 2008 and killed eight people.
Security in Sinai has deteriorated sharply since February, when long-time leader Hosni Mubarak was ousted from power in a popular uprising.
Many Israelis saw Mubarak as a source of stability with shared interests in containing Iran and its radical Islamic proxies in the region, such as Hamas.
Last week Egypt moved thousands of troops into the Sinai peninsula as part of a major operation against al-Qaida-inspired militants who have been increasingly active in Sinai since Mubarak was removed.
The attacks began around midday, when attackers targeted a packed bus driving along a highway about 10 miles north of the Red Sea resort of Eilat, close to the border crossing into Sinai.
Within the space of about an hour, along that same road, the attackers opened fire on one more bus and two civilian vehicles, and an army vehicle rushing to the area drove over an explosive device, the military said.
Around the same time an undisclosed number of mortar shells were fired from the Gaza Strip at Israeli soldiers conducting routine maintenance work on the security fence along the Israel-Egypt border, the statement said.
In all, six civilians and one soldier were killed, said Israel's southern military commander, Major General Tal Russo.