Israeli Prime Minister Mr Ariel Sharon says there will be no let-up in the attacks in the Palestinian territories following the missile bombardment of targets in Gaza City today.
The strikes were in retaliation for a roadside bomb that killed two migrant Romanian labourers repairing an Israeli border fence with the Gaza Strip.
Two missiles punched holes into the offices of Palestinian President Yasser Arafat's Fatah faction near the beach, causing balconies to crumble and extensive damage to two of the building's four floors. Windows in nearby buildings shattered.
Referring to the strikes on Palestinian targets, Mr Sharon told reporters: "This is part of the campaign that is being waged and this campaign will be conducted until there is a complete restoration of security. Not a reduction of terror, but an end to terror."
Fierce fighting between Israeli troops and Palestinian gunmen was also reported through the day near the Egypt-Gaza border, where the army destroyed several buildings overnight.
Hospital officials said five Palestinian policemen and eight civilians were wounded in the two Gaza City attacks.
"This is a new dangerous escalation. We warn the Israeli government against the continuation of its aggression against the Palestinians. This escalation will destabilise the entire region," senior Arafat aide Mr Nabil Abu Rdainah said.