Israel's air force cancelled a planned raid on the home of a Gaza last night after hundreds of Palestinians barricaded themselves inside the building.
Israel had issued a warning to the family of a militant of the Popular Resistance Committees (PRC) in Jabalya refugee camp to evacuate their home because it would be bombed, Palestinian witnesses said.
The PRC is one of several militant groups behind daily rocket attacks from Gaza against southern Israel.
Hundreds of neighbours and protesters gathered at the site, many barricading themselves inside the house, witnesses said.
An Israeli military spokesman confirmed the raid had been called off because of the gathering.
"We differentiate between innocent people and terrorists," he said, vowing Israel would continue its strikes against militants and accusing gunmen of using civilians in Jabalya as human shields.
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Hours after the "human shield" protest, an Israeli aircraft attacked a car carrying Hamas militants on a crowded Gaza City street. Hospital officials said an elderly passerby died of his wounds after being hit in the strike.
Medical workers said the two men in the vehicle and two other passersby were wounded.
Israeli Defence Minister Amir Peretz spoke yesterday with Palestinian President Mahmoud Abbas by phone and urged him to take steps to stop militants firing rockets into Israel, a Defence Ministry spokeswoman said.
A senior Palestinian official said Mr Abbas had called for a "mutual ceasefire" in Gaza and the West Bank.
Israel has stepped up attacks in northern Gaza since a Palestinian rocket strike killed an Israeli woman and seriously wounded a man in the Israeli town of Sderot on Friday.