The fighting is the worst episode of violence since Israel and Hamas fought a brief war in 2014. The United States, European Union and United Nations have condemned the rocket and mortar attacks against Israel.
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Israel has launched airstrikes against targets throughout the Gaza Strip after the armed wing of the ruling group in the Palestinian territory launched dozens of rockets and mortar shells into southern Israel.
The confrontation, which continued into Wednesday morning, is the worst episode of violence between Israel and Hamas since they fought a seven-week-long war in 2014.
The Israeli military said around 70 rockets and bombs had been fired into Israel by 8 p.m. local time on Tuesday (1700 GMT). One mortar shell landed near a kindergarten.
Israeli forces intercepted most of the rockets and mortar shells, the military said, and tanks and bombers responded by targeting 55 militant locations within Gaza. There were no immediate reports of Palestinian casualties.
Three Israeli soldiers were wounded, according to the military.
The armed faction of Hamas and Islamic Jihad claimed responsibility for the attacks in a joint statement. They said they were retaliating against "Zionist aggression and crimes against our people" since clashes between Israeli forces and Palestinian protesters on March 30.
Islamic Jihad said Egypt had brokered a ceasefire agreement with Israel, but Israel later dismissed the report.
Israeli Prime Minister Benjamin Netanyahu said: "The Israeli army will respond with great force to these attacks,
and Israel will exact a heavy price from anyone who tries to harm it, and we see Hamas as responsible for preventing these attacks against us."
Israeli Intelligence Minister Israel Katz said Hamas and Israel were "at the closest point to the threshold of war" since 2014. "If the firing [from Gaza] does not stop, we will have to escalate our responses and it could lead to a deterioration of the situation," Katz told Army Radio.
Palestinian President Mahmoud Abbas, whose Fatah group rules the Palestinian West Bank and is a rival of Hamas and Islamic Jihad, said Israel had used "vigorous aggression" against Gaza and was not interested in peace.
Abbas: 'Israel does not want peace'
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US Ambassador to the United Nations Nikki Haley called for an emergency meeting of the UN Security Council for Wednesday and said: "The Security Council should be outraged and respond to this latest bout of violence directed at innocent Israeli civilians."
The European Union's foreign policy chief, Federica Mogherini, called on Hamas to end its rocket and mortar strikes and said "indiscriminate attacks against civilians are completely unacceptable under any circumstances."
Nickolay Mladenov, the UN's special coordinator for the Middle East peace process, denounced "the indiscriminate firing of rockets by Palestinian militants from Gaza toward communities in southern Israel."
Weeks of violence: The exchanges follow weeks of clashes along the Gaza-Israeli border. Israeli forces have shot and killed more than 110 Palestinians protesting against Israel's occupation of lands claimed by Palestinians. Israel has said the use of force against protesters was necessary to defend Israel's border, and has accused Hamas of using civilians as human shields.
How the Gaza protests against Israel escalated this year
The origin of conflicts in the region could be dated back centuries but this year has seen some key events leading to an escalation in the tension between Israel and Palestinians in Gaza.
Image: Reuters/A. Cohen
Palestinian PM Rami Hamdallah targeted
The convoy of Palestinian Prime Minister Rami Hamdallah of the West Bank-based Fatah group was targeted as he made a rare visit to Gaza on March 13. The Palestinian Authority said it held Hamas responsible, having failed to provide adequate security. Hamas claimed the attack was aimed at hurting efforts to achieve unity and reconciliation.
Image: Reuters/I. Abu Mustafa
Land Day march
Some 30,000 Palestinians took part in the first of the demonstrations on March 30, marking Land Day, named for the 1976 Arab protests against Israeli plans to expropriate land. Some demonstrators ran at the border fence and 16 were killed by Israeli troops with others injured, and some dying later.
Image: Getty Images/AFP/M. Hams
Netanyahu: 'We will hurt them'
Speaking on April 9 in the Israeli town of Sderot, near Gaza, Prime Minister Benjamin Netanyahu said: "We have one clear and simple rule and we seek to express it constantly: If someone tries to attack you — rise up and attack him. We will not allow, here on the Gaza border, them to hurt us. We will hurt them."
Image: Getty Images/AFP/G. Tibbon
Protesters injured
Palestinians ran to help a young man injured during the border protest on April 13. Stones had been thrown at border guards and the Israeli troops fired on the demonstrators. Some 45 Palestinians died and hundreds were injured between March 30 and April 27.
Image: Getty Images/AFP/M. Hams
Boy killed on April 20
Protest continued on April 20th, with some Palestinian protesters using kites to transport Molotov cocktails and firebombs over the fence. Israeli snipers killed at least four more Palestinians on April 20th, including a 15-year-old boy. The UN Middle East envoy dubbed the killing "outrageous."
Image: Getty Images/S. Khatib
May 15: US Embassy officially moved to Jerusalem from Tel-Aviv
US President Donald Trump's daugher Ivanka is part of the delegation that opened the new US Embassy in Jerusalem. The transfer of the embassy triggered a fresh wave of protests in which 62 people were killed. The deaths have considerably heightened tensions in the area.
Image: Reuters/R. Zvulun
US no longer seen as partner in Middle East negotiations
As the US celebrated its embassy move from Tel-Aviv to Jerusalem, Palestinian protests escalated. The events coincided with the 70th anniversary of the foundation of modern-day Israel, and Nakba Day, when Palestinians recall those who fled or were expelled as Israel was established.
Image: Reuters/I. Abu Mustafa
More than 60 people were killed in protests
Palestinians carried away a protester injured on May 15th after demonstrations marking the 70th anniversary of Nakba.
Image: Getty Images/AFP/S. Khatib
Palestinian youths run from tear gas
Hamas official Salah al-Bardaweel said on Palestinian television that all but 12 of the dead were members of Hamas. Mahmoud Abbas the head of the Palestine Liberation Organization is planning to pursue a war crimes complaint against Israel at the International Criminal Court.
Image: Reuters/I. Abu Mustafa
Israeli airstrikes pound Hamas military targets in Gaza
Following an increase in cross-border violence in mid-July, Israel pounded Hamas military targets in Gaza, while Palestinian militants fired more than 170 rockets and mortars into Israel. Two Palestinian boys, aged 15 and 16, were killed in Israeli airstrikes, according to Gaza's health ministry. Three Israelis were injured after a rocket landed on a residential home in the Israeli city of Sderot.
Image: picture-alliance/newscom/I. Mohamad
Israel temporarily closes its Kerem Shalom cargo crossing with the Gaza Strip
Days later, Israel blocked all fuel and gas transfers through the Kerem Shalom crossing with the Gaza Strip for six days "in light of the continued terrorist attempts of Hamas." Israel's defense ministry said essential food and medicine deliveries would still get through. The crossing had been shuttered to commercial trade a week earlier.