Gaza militants fired rockets towards Israel, which responded with air strikes overnight, the Israeli military said, in the most serious escalation of cross-border violence in months, prompting mediators to step up de-escalation efforts.
There were no reports of injuries on either side. An Israeli military spokeswoman said late Friday its Iron Dome system intercepted nine of 12 rockets.
Anticipating Israeli retaliation, Hamas, Gaza's Islamist ruler, routinely evacuates personnel from its sites.
Hamas has been trying to pressure Israel to ease its 13-year blockade of Gaza and allow more investment, in part by permitting Palestinians to launch helium balloons carrying incendiary material that have torched tracts of Israeli farmland in recent weeks.
"The Egyptians, the Qataris and (U.N. Middle East envoy) Nickolay Mladenov have stepped up their efforts in order to restore calm, but calm can only come if Israel agrees to demands presented by Hamas and other factions," a Palestinian official told Reuters.
Mladenov's office did not respond to a request for comment.
With tensions high, Israel has closed its only commercial crossing with Gaza, banned sea access and halted fuel imports into the coastal strip, causing its only power plant to shut down earlier this week.
Egyptian mediators held talks in Gaza on Monday to restore calm but left without striking an agreement, Palestinian political sources said.
Gaza's Joint Command of armed factions, of which Hamas is a part, claimed responsibility for the rocket fire overnight, saying it would "respond to every attack by the enemy against its positions and against our people".
Buildings and vehicles in the southern Israeli city of Sderot were damaged, police said, and some Gaza commercial buildings and homes near the sites of Israeli air strikes on Hamas facilities were damaged.
Later on Friday, Israeli Defence Minister Benny Gantz said the military "will attack the attackers in turn, inflicting serious damage".
"The people of Gaza suffer because of Hamas and we will continue to protect the residents of the south and the citizens of Israel," Gantz said following a meeting with military chiefs.
Hamas spokesman Fawzi Barhoum accused Israel of tightening restrictions on Gaza, which Israel has blockaded since 2007 citing security concerns from Hamas.
Israel "undermines the life of (Gaza's) people and bombs resistance positions, and therefore they have to bear responsibility and pay the price", Barhoum said.