A truce declared by Palestinian armed groups unravelled even before it could take hold as resistance fighters fired dozens of mortar rounds and rockets into southern Israel and the military retaliated against Gaza.
The escalating tit-for-tat violence came despite calls for an end to the hostilities from both the European Union and the United Nations.
Around 30 rounds or rockets fired from the Gaza Strip landed on Israeli soil early Saturday, without causing damage or injury, Israeli military radio said. Twenty mortar bombs exploded, while 10 Grad rockets struck the area around Ashdod, Beersheba and Kiryat Gat, the radio said.
Israeli shelling killed the Palestinian and wounded a second in an eastern neighbourhood of Gaza City, medics said, without specifying whether they were militants or civilians.
The latest round of fighting erupted on Thursday when militants from the Islamist Hamas movement which rules Gaza fired an anti-tank missile at an Israeli school bus, critically wounding a teenager and injuring the driver.
"The attack on a school bus yesterday crossed the line ... Whoever tries to hurt and murder children, his blood will be on his own head," Israeli Prime Minister Benjamin Netanyahu said in Prague on Friday before heading home.
Since the bus attack, Israel has launched dozens of raids on targets across the Palestinian territory. By early Saturday, it had killed 17 Gazans -- including a 10-year-old boy, at least five Hamas militants and one policeman.
At least 57 Palestinians were wounded, 12 of them seriously, medics said.
The death toll of 12 made it the deadliest 24 hours in Gaza since the end of Operation Cast Lead, the devastating 22-day offensive Israel launched in December 2008 that claimed the lives of some 1,400 Palestinians -- more than half of them civilians -- and 13 Israelis, 10 of them soldiers.
Palestinian armed groups had declared a unilateral truce but both Hamas and Islamic Jihad claimed mortar and rocket attacks on Israel on Friday as the violence intensified.
"Our holy warriors are ready to react to the Zionist aggression and respond to any foolish acts committed by the occupation with everything they have," said a statement from Hamas's armed wing, the Ezzedine al-Qassam Brigades.
A spokeswoman for the Israeli military said that rocket and mortar fire by Gaza militants had continued into Saturday morning.
Several industrially-manufactured Grad rockets had been fired at the Israeli port city of Ashkelon but had been intercepted by the newly-deployed Iron Dome short-range defence system, the spokeswoman added.
A statement on the Hamas military wing's website said the "resistance" had fired several Grad rockets at Ashkelon on Friday, and that smoke had been seen rising from the city.
However, the Israeli defence ministry said that the Iron Dome anti-rocket system, deployed around Ashkelon just last Monday, had intercepted three of the rockets, while a fourth struck open ground without causing damage.
The port city with a population of some 113,000 was the second city to be protected by an Iron Dome battery after the desert city of Beersheba which has also been a target for attack by Gaza militants.
The defence system, the first of its kind in the world and still at the experimental stage, is not yet able to provide complete protection against rocket fire from Gaza, army commanders have warned.
The Israeli military spokeswoman said that the overnight raids on Gaza had targeted a "large car carrying weapons", a tunnel and "three Hamas commanders".
EU foreign policy chief Catherine Ashton condemned the rocket fire from Gaza but urged Israel to show restraint, angering Israeli diplomats for omitting any reference to Hamas.
Ashton called for "an immediate cessation of all violence", prompting an Israeli diplomat to express "dismay" at her "choice of words".