Israeli tanks rolled into Gaza City early today and destroyed a police post and two other buildings. In Qalqilya, in the northern West Bank, a Palestinian was killed by the Israeli army.
The incursion is the first operation there since a bombing attack earlier this week killed a Hamas leader and 14 other Palestinians, most of whom were children.
Palestinian factions were understood to be close to calling a cessation of violence before the Israeli attack.
Witnesses said seven tanks accompanied a bulldozer that flattened a small Palestinian military intelligence position and a metal workshop, and then soldiers blew up another workshop in a blast that could be heard all over the city.
Gunmen fired at the Israelis, and two Palestinians were wounded in the exchange, they said.
In Qalqilya, in the northern West Bank, a Palestinian man was shot and killed by Israeli troops who were carrying out house-to-house searches in his neighbourhood, Palestinian medical sources said.
The Israeli military claimed soldiers destroyed three buildings where rockets were made, blowing up 22 "Qassam" rockets in the process.
Despite the violence, tentative efforts were underway to restart talks among Palestinian factions toward stopping attacks against Israel. Palestinians said the Israeli bombing sabotaged plans for a unilateral truce declaration by one or more Palestinian groups.
Palestinian and Israeli officials were to meet today to discuss easing Israeli restrictions in the West Bank, where Israeli forces have controlled seven of the eight main cities and towns since last month.
Israeli officials continued to justify the air strike Tuesday that killed Hamas commander Salah Shehadeh, while apologizing for the civilian casualties. But international denunciations continued.
Calling the Israeli attack "abominable," Egyptian President Hosni Mubarak charged that Israel's goal was to sabotage cease-fire efforts. Mubarak was speaking in Paris.
In Washington, Secretary of State Colin Powell said the Bush administration is reviewing Israel's use of US-made weapons in the wake of the air strike. Israel had no comment, but an official, speaking on condition of anonymity, said Israel was receiving no special treatment and had nothing to hide.
Israeli Defense Minister Binyamin Ben-Eliezer said Thursday that Israel called off strikes against Shehadeh several times after learning that civilians were with him.
Last Saturday night, "the plane was in the air" with the bomb when Israel discovered that one of Shehadeh's seven daughters was with him, and the strike was called off, Ben-Eliezer said.
However, Shehadeh's 14-year-old daughter Iman was killed in Tuesday's strike, along with Shehadeh, his wife, a bodyguard and 11 other people, most of them children in adjoining buildings.
Addressing the Labor Party that he leads, Ben-Eliezer defended the decision to kill Shehadeh, commander of the Hamas military wing known as Izzadine al-Qassam, which is responsible for hundreds of attacks against Israelis.
Palestinian Cabinet Minister Nabil Shaath said the Israeli air strike was aimed at scuttling a unilateral cease-fire that the Tanzim, a leading militant group, was set to declare. The Tanzim was also talking with other militant factions, such as Hamas, which were considering the proposal.
Hamas leaders have said that the Israeli attack cancelled the pact, and that they will step up suicide bombing attacks.
AP