The Israeli army began withdrawing yesterday from areas it reoccupied in the Gaza Strip the day before, a senior Palestinian official said.
"Our people on the ground saw the beginning of the pull out," the official, who asked not to be identified, said.
Another Palestinian official said Israel had informed the Palestinian Authority it was extracting its soldiers from the territory they seized late on Monday.
"We always said that it will happen when the military operation ends," said Mr Raanan Gissin, a spokesman for the Israeli Prime Minister, Mr Ariel Sharon.
The Israeli military reoccupied parts of Gaza overnight during a fierce air and naval missile assault which followed a Palestinian mortar bomb attack on a town in southern Israel.
Israel Radio said Mr Sharon had informed the US of the pull out, after Washington publicly called for Israeli troops to leave the reoccupied areas.
The army's actions had been condemned by the US Secretary of State, Mr Colin Powell, who called them "excessive and disproportionate".
The area snatched by the army was in the northern section of Gaza, from where Israeli officials said the mortars had been fired on Monday at the southern Israeli working-class town of Sderot, several kilometres from the Strip.
Air-raid shelters were cleared out yesterday in Sderot for the first time since the 1973 Israel-Arab war.
Israeli tanks fired shells at Palestinian security installations in Gaza yesterday morning, after Mr Sharon had unleashed a broad air-sea-ground offensive on targets in the Gaza Strip overnight. Palestinians reported that two people were killed in the offensive, one of them a policeman.
Another two Palestinians were killed in the territories yesterday in clashes with Israeli troops. Palestinians said an Israeli army sniper shot dead a 15-year-old boy in Gaza, while troops shot and killed a 17-yearold Jordanian citizen near the West Bank city of Tulkarem after he stabbed a soldier.
In another response to the mortar attack, for which the militant Hamas movement claimed responsibility yesterday, the army sliced Gaza into three, preventing movement between the northern, central and southern sections of the Strip.
While the Bush administration had reserved much of its criticism for the Palestinian Authority President, Mr Yasser Arafat, in recent weeks, Mr Powell was particularly harsh on Israel yesterday. While he still blamed the Palestinians for the latest round of violence, he called on Israel to honour signed agreements to withdraw its forces in Gaza.
Sources in Mr Sharon's office were quoted as saying that Israel had no intention of conquering Palestinian-controlled areas and hanging on to them.
The Israeli Foreign Minister, Mr Shimon Peres, who is one of the architects of the Oslo peace process, justified the thrust into Gaza, saying Israel could not tolerate a situation where Palestinians in the middle of the day fired on a calm civilian community without logic, without proportion.
"We are not looking for a response for the sake of a response, to seize for the sake of seizing," he said.
Incensed Palestinian leaders said they would refuse to attend security meetings with their Israeli counterparts and angrily protested the seizing of their territory, which Mr Arafat described as an "unforgivable crime". Mr Sharon, he said, was trying to "subdue" the Palestinian people, but he added that his was a brave nation that could not be subdued.