Seven Palestinians, including a local Hamas commander, have been killed during an Israeli operation in the Gaza Strip, Palestinian officials say.
An Israeli soldier was also killed and another wounded, the Israeli military said, in an ensuing firefight.
Palestinians said an Israeli unit had killed the commander after infiltrating the territory in a civilian vehicle.
Sirens later sounded in communities across southern Israel and rockets were fired from Gaza, without causing harm.
The Israeli military later said 17 rockets had been fired and three were shot down. It was not clear if the rockets had caused any damage.
In the wake of the clashes, Israeli Prime Minister Benjamin Netanyahu cut short his visit to Paris for events to mark the 100th anniversary of the end of World War One and returned to Israel, his office said.
A spokesman for Hamas, the militant Islamist group that dominates Gaza, described the incident as a “cowardly Israeli attack”.
Hamas officials and medics said seven Palestinians were killed, four of them militants. The senior Hamas member killed was named as Sheikh Nur Barakeh, a commander of the Izzedine al-Qassam brigades, the group’s military wing, in Khan Younis, in the south of the territory.
Hamas said Israeli special forces fired from a car around 3km (2 miles) inside the Gaza Strip.
An exchange of fire then broke out, with witnesses reporting tank shelling and explosions from Israeli air strikes in the area.
The Israel Defense Forces (IDF) chief Lt Gen Gadi Eisenkot said the Israeli unit had carried out “a very meaningful operation to Israel’s security”.
“The IDF owes Lt Col M more than we can say,” he said in a statement.
BBC Middle East correspondent Tom Bateman says the exposure of such an operation by Israeli special forces inside Gaza would be extremely rare and comes after apparent progress in an Egyptian- and UN-brokered process to mediate after a series of escalations between the two sides in recent months.
Tensions between Israel and Hamas have soared in recent months.
Rocket-fire from Gaza and Israel air strikes against militant targets have been a regular occurrence.
More than 200 Palestinians in Gaza have been killed by Israeli forces since the end of March – most during weekly protests along the border at which thousands have expressed their support for the declared right of Palestinian refugees to return to their ancestral homes in what is now Israel.
Israel has said its soldiers have only opened fire in self-defence or on potential attackers trying to infiltrate its territory under the cover of the protests.
One Israeli soldier was killed on the Gaza-Israel border by a Palestinian sniper in July.
Israelis kill Hamas commander in undercover Gaza raid}