Up to 70 Palestinians have been injured in a gun battle between Israelis and Palestinians at a refugee camp in the Gaza Strip.
The clash occurred as Palestinian gunmen threatened to step up violence to wreck Israeli Prime Minister-elect Ariel Sharon's promises of security.
Dozens of Palestinians have been overcome by smoke bombs used by Israeli soldiers during the gun battle in the Khan Younis camp.
Israeli officials say the clashes began when Palestinians attacked a military base in a Jewish settlement.
Shooting incidents over the past two days marked an escalation after a relative lull in recent weeks.
Mr Sharon has not yet taken office - he is still trying to form a coalition - but his advisers have warned that once he is in power, Israel will retaliate more harshly than it has under his predecessor, Ehud Barak.
Coalition negotiations between Mr Sharon's Likud faction and Mr Barak's Labour Party have resumed.
The two sides have agreed that a joint government will only seek an interim accord with the Palestinians, not a final peace deal.
In the West Bank, Palestinian leader Yasser Arafat's Fatah movement says it will escalate attacks on Israelis.
A Fatah leaflet states: "We will not be the only ones who will suffer. The Sharon era will not be as stable and secure as the criminal Sharon promises."
It was not clear whether Fatah had Mr Arafat's blessing. The relationship between the Palestinian leader and the armed wing of his Fatah movement has become increasingly complex in five months of Israeli-Palestinian fighting.