Palestinian rockets that hit a town in southern Israel this morning killed at least two people, Israel's Channel Two television said.
The attack on the town of Sderot was launched several hours after Palestinian militants tunnelled under an Israeli army post in the Gaza Strip and blew it up in a large explosion that killed one soldier and wounded five.
Palestinian medics said two Palestinians were shot dead in Gaza shortly after the blast.
Rescue services had initially reported 30 casualties but later scaled down the number. The confusion was due to the destruction of the outpost and the fear that soldiers may have been trapped in the rubble.