At least five people were killed in a series of attacks on vehicles near the Israel's border with Egypt on Thursday, Israeli medics say.
At least ten others were injured when gunmen ambushed and fired at a passenger bus about 20 kilometers north of the Red Sea resort city of Eilat.
Several soldiers are believed to be among the dead.
Israeli officials said the gunmen came from the Gaza Strip via Egypt's Sinai Desert.
"The real source of the terror is in Gaza and we will act against them with full force and determination," Israeli Defense Minister Ehud Barak said.
Ahmad Yousef, a senior Hamas leader in Gaza, denied any connection with Thursday's attacks.
He said, however, that Hamas "praises the attack since it attacked [Israeli] soldiers and came at the right time - Israel is attacking Gaza almost every day," Al Jazeera television reported.
An Israeli military spokeswoman said earlier it had been a "combined attack" by a terror squad that infiltrated Israel.
Reports say the first attack took place when two to three attackers jumped out of a car that had been following the bus along the Israel-Egypt border and opened fire on it.
A second bus was hit by rocket fire in the second attack that came close to the site of the initial incident.
A military patrol was hit by a roadside bomb when it arrived at the site. Security forces are in pursuit of the gunmen, and the exchange of fire is continuing.
