At least 20 people were killed, including nine children, and 65 others wounded in Israeli air strikes on the Gaza Strip after Palestinian militants fired rockets towards Israel, Hamas said.
Israel has said it was striking Hamas targets in retaliation for the dozens of rockets fired Monday from the enclave towards Israel, but has not confirmed its strikes had caused fatalities.
The health ministry in Hamas-run Gaza said the updated death toll included a 10-year-old girl, while Hamas has confirmed that one of its commanders was killed in a strike.
Israeli Prime Minister Benjamin Netanyahu warned that Hamas had crossed a "red line" by directing missiles towards Jerusalem and that Israel would "respond with force".
"We will not tolerate attacks on our territory, our capital, our citizens and our soldiers. Those who attack us will pay a heavy price."
The Israeli army said at least 45 rockets were fired from the coastal strip into Israel. Several were intercepted by Israel's Iron Dome anti missile defence system or fell onto vacant lands and no casualties were reported.
Israeli army spokesman Jonathan Conricus said: "We have started, and I repeat started, to attack military targets in Gaza".
He said Israeli forces had targeted "a Hamas military operative," while Hamas sources in the enclave confirmed to AFP that one of their commanders, Mohammed Fayyad, had been killed.
Tensions have flared since Israeli police started a crackdown on Palestinian worshippers last Friday of the Muslim fasting month of Ramadan in the city's worst disturbances since 2017.
Nightly crackdown by Israeli forces since then at the Al-Aqsa compound has left hundreds of Palestinians wounded, drawn calls for de-escalation from the international community and sharp rebukes from across the Muslim world.
Adding to the sense of chaos, a huge fire engulfed trees in the compound that houses the mosque, Islam's third holiest site.
Hamas, which controls the Gaza Strip, earlier Monday warned Israel to withdraw all its forces from the mosque compound and the east Jerusalem district of Sheikh Jarrah, where looming evictions of Palestinian families have fuelled angry protests.
Sirens wailed across Jerusalem just after the 1500 GMT deadline set by Hamas as people in Jerusalem, including lawmakers in the Knesset legislature, evacuated into bunkers, amid warnings over loudspeakers.
A spokesman for Hamas' armed wing the Qassam Brigades said that "a volley of rockets was fired towards the enemy in occupied Jerusalem in response to its crimes and aggression on the holy city and repression of its residents in Sheikh Jarrah and the Al-Aqsa mosque".
"This is a message that the enemy must understand well: if you respond we will respond, and if you escalate we will escalate."
The United States said it "condemns in the strongest terms the barrage of rocket attacks fired into Israel in recent hours. This is an unacceptable escalation."
A house in Beit Nekofa, about 10 kilometres (six miles) west of central Jerusalem, was also damaged by rocket fire, AFP TV reported.
The Israeli army said on Twitter that, separate to the rockets, "as a result of an anti-tank missile fired from Gaza, an Israeli civilian in a nearby vehicle was lightly injured" in the Gaza border area.
Fears of further chaos in the Old City had temporarily eased when Israeli organisers of a march to celebrates 1967 capture of east Jerusalem cancelled the event.
But then came the Hamas warning, followed by the rockets, which also forced the evacuation of the Wailing Wall and other sites.
Militants in Gaza have recently also deployed incendiary balloons that have sparked dozens of fires in Israeli territory.
In Monday's Israeli crackdown at Al-Aqsa, as during the previous nights since Friday, Palestinians hurled rocks at Israeli officers in riot gear who fired rubber bullets, stun grenades and tear gas.
The Palestinian Red Crescent put the toll from Monday's Israeli crackdown at 331 injured, including more than 200 who were hospitalised, five of them in critical condition.
The Israeli crackdown since Friday has been fuelled by a long-running bid by Jewish settlers to evict several Palestinian families from their nearby Sheikh Jarrah neighbourhood.
A Supreme Court hearing on a Palestinian appeal in the case originally set for Monday was pushed back by the justice ministry due to the tensions.
Palestinian president Mahmoud Abbas condemned what he called Israel's "barbaric aggression".
*This story was edited by Ahram Online.