Israeli troops killed five Palestinians today as tanks pushed into the southern Gaza Strip in what the army called a raid to root out militants behind mortar and rocket fire on Jewish settlements.
Israel moved closer to abandoning the occupied territory as Prime Minister Ariel Sharon and the opposition Labour party reached a deal that appeared to clear a final obstacle to a unity government able to remove troops and settlers.
Violence has shown little sign of ebbing in Gaza despite the pullout plan, new hopes for talks with Israel after Yasser Arafat's death last month and a looming Palestinian presidential election expected to bring moderate Mahmoud Abbas to power.
An Israeli drone fired missiles into the city of Khan Younis, killing two members of the Islamic Hamas militant group and one from al-Aqsa Martyrs Brigades. The army said they were part of a squad firing at nearby settlements.
Medics and witnesses said Israeli fire killed two 17-year-olds watching the clashes. The army said it shot at men thought to be laying explosives.
Nine Palestinians were wounded, while an Israeli woman was hurt by a mortar at a settlement.
Despite scores of raids during a four-year-old Palestinian uprising, mortar fire has persisted and even intensified ahead of an Israeli plan to remove the 8,000 settlers living among 1.3 million Palestinians in the occupied Gaza Strip next year.
Opening the way for a coalition to quit Gaza, opposition leader Mr Shimon Peres agreed to become a "deputy to the prime minister". His earlier desire to be made vice-premier was impossible under Israel's constitution unless Mr Sharon sacked his current number two, Mr Ehud Olmert.
Militants hope to portray any Israeli withdrawal as a pullout, while the army aims to smash them first.
The continuing violence has raised doubts over fresh optimism for negotiations following Arafat's death on November 11th and the emergence of a new Palestinian leadership seen as relative moderates.
Palestinian officials condemned Israel's raid and said it was undermining preparations for the January 9th election despite Israeli promises to do all it could to ensure they go smoothly.
Militant attacks also pose a challenge to Mr Abbas, who is widely expected to win the election, and has called for an end to armed struggle and for renewing statehood talks with Israel.
Mr Abbas was due to take his campaign to the West Bank militant stronghold of Jenin today before coming to Gaza tomorrow.
Mr Sharon has said 2005 may be a year of peace and that he could coordinate the pullout from Gaza and a small part of the West Bank, though broader talks could only follow if attacks by militants stopped.
Palestinians fear that Mr Sharon's "Disengagement Plan", backed by Western countries, will give them Gaza at the cost of a stronger Israeli hold in the West Bank. Both territories were captured by Israel in the 1967 Middle East war.