Israel says its fighter jets have hit 100 Palestinian militant targets overnight in the Gaza Strip after militants fired 370 rockets at Israel.
Six Palestinians, four of them militants, died in the strikes on Gaza, while a man was killed in a rocket attack in the Israeli town of Ashkelon.
Both Israel and Hamas, the militant group that rules Gaza, have threatened to escalate their actions.
Violence erupted when a covert Israeli mission was exposed in Gaza on Sunday.
Seven Palestinian militants, including a Hamas military commander, and an Israeli lieutenant colonel who was in the undercover unit were killed in clashes.
The incident came after apparent progress in an effort by Egypt and the UN to secure a truce on the Gaza border, where more than 200 Palestinians have been killed during protests since March.
How serious is the upsurge?
After a brief lull following Sunday night’s violence, a barrage of rockets and mortars was launched towards Israel late on Monday, which Israeli medics said killed one person and injured 28.
A bus, which had reportedly been carrying troops, was hit by an anti-tank missile in the Shaar Hanegev region, seriously wounding a male soldier.
Overnight, one man was killed when a block of flats in Ashkelon was hit by a rocket. Unconfirmed Israeli media reports identified him as a Palestinian from the West Bank.
Eight other people were injured in the attack, including two women who the Israeli ambulance service said were in a serious condition.
In response, the Israeli military carried out what it called a wide-scale attack against military targets belonging to the Hamas and Islamic Jihad groups.
It said they included Hamas’ military intelligence headquarters in northern Gaza and “a unique vessel” in a harbour in the south of the territory.
The building housing Hamas’s Al-Aqsa TV was also bombed after being evacuated, disrupting broadcasts. Israel said the outlet “contributes to Hamas’s military actions”.
The Hamas-run Gaza health ministry said six people were killed and 25 others injured in the strikes. Four of the dead were militants and two are said to have been farmers.
This is one of the most serious rounds of fighting since Israel and Hamas fought a war in 2014.
The Israeli military has warned it is prepared to “dial up its response” to the rocket fire, while Hamas’s military wing said it was ready to “expand the circle of fire” against Israel.
UN Middle East envoy Nickolay Mladenov called on all sides to show restraint and said efforts were being made with Egypt to pull Gaza “back from the brink”.
“The escalation in the past 24hrs is EXTREMELY dangerous,” he tweeted on Monday night.
How did the violence start?
Palestinians said they discovered an undercover Israeli unit in a civilian car about 3km (2 miles) inside the Gaza Strip late on Sunday.
A firefight ensued in which the Hamas commander was killed. Israel launched air strikes and opened fire with tanks on the area, witnesses said. Six other militants were killed as well as one of the Israeli special forces soldiers.
The incident is reported to have happened east of Khan Younis, in the south of the territory.
Why did Israel kill the commander?
Due to the secrecy of the operation, Israel has not revealed specific details about the mission.
The IDF said, however, that the operation was “not intended to kill or abduct terrorists, but to strengthen Israeli security”.
The BBC’s Tom Bateman in Jerusalem says that according to a former Israeli general, the incident was likely to have been an intelligence-gathering operation that went wrong.
The exposure of such an operation by Israeli special forces inside Gaza would be extremely rare, he says.
Fawzi Barhoum, a spokesman for Hamas, denounced Sunday’s incident as a “cowardly Israeli attack”.
Why are Israel and Hamas enemies?
Hamas won Palestinian elections in 2006 and reinforced its power in the Gaza Strip after ousting West Bank-based Palestinian President Mahmoud Abbas’s rival Fatah faction in clashes the following year.
While Mr Abbas’s umbrella Palestine Liberation Organisation (PLO) has signed peace accords with Israel, Hamas does not recognise Israel’s right to exist and advocates the use of violence against it.
Israel, along with Egypt, has maintained a blockade of Gaza since about 2006 in order, they say, to stop attacks by militants.
Israel and Hamas have gone to war three times, and rocket-fire from Gaza and Israeli air strikes against militant targets are a regular occurrence.
Israel-Gaza: Heavy fire traded across border