Israel on Wednesday authorised military operations against Hamas institutions and targeted killings against anyone behind 'terrorist attacks' in a bid to counter Palestinian rocket fire.
The decision in principle to close in on Hamas, which heads the internationally boycotted Palestinian government, came as five Palestinians were killed and an Israeli soldier wounded in the Palestinian territories.
In a meeting chaired by beleaguered Prime Minister Ehud Olmert, Israel's powerful security cabinet backed military operations against Hamas institutions in Gaza and targeted operations against anyone involved in "terrorist attacks".
The cabinet also decided to continue diplomatic efforts, and co-operation with Egypt and the world community to "confront the strengthening of terrorist forces" in the Gaza Strip and prevent weapons smuggling.
Nevertheless, security chiefs appeared to have ruled out a wider ground offensive in Gaza for the time being, ordering the army only to prepare for a stepped-up offensive and to submit plans for approval.
"The Israeli security cabinet decides to continue targeted killing operations against any element involved in terrorist attacks as well as military operations against Hamas institutions" in Gaza, the cabinet said.
"The objectives will be authorised by the prime minister and the defence minister (Amir Peretz)," an official statement added.
Olmert and the more dovish Peretz have reportedly been at loggerheads recently over a widening policy gulf because of the continuing violence that previous military operations have proved powerless to stop.
Israel launched a massive crackdown on Hamas in June, arresting dozens of elected officials and bombing government ministries and militant strongholds after Hamas fighters claimed partial responsibility for capturing a soldier.
Hamas's armed wing has claimed numerous rocket attacks on Israel, including strikes in which two Israelis were killed in the past week -- the first such deadly attacks since last year's withdrawal from the Gaza Strip.
The Islamist movement has withstood massive pressure from the West and from Palestinian president Mahmud Abbas to recognise Israel, renounce violence and abide by peace agreements, in order for a crippling aid boycott to be lifted.
Rockets fired by militants from the radicalised territory have become a persistent menace since Israel's landmark pullout after a 38-year occupation, with civilians in border communities living in constant fear of attack.
A mother and a factory worker were killed in the town of Sderot within a week, the first such deaths since the pullout. That brings to 10 the number of people to be killed by such attacks on Israel since the intifada began in 2000.
"We need simultaneously to strengthen protection against rocket fire, strike the terrorists at times, develop technological ways (to intercept rockets) and search for a political solution," Deputy Prime Minister Shimon Peres said.
Four rockets exploded inside Israel on Wednesday, causing no casualties although one fell close to a primary school in Sderot, the army said.
In the Gaza Strip, four Palestinians were killed by Israeli fire in the northern part of the territory as Israel pressed ahead with offensives.
Among the dead was a 17-year-old who, according to medical sources, was hit in the head in Beit Lahiya. A 39-year-old woman was also killed when a missile struck her home in the town of beit Hanun. Two Hamas militants were killed in clashes in the northern Gaza Strip, Palestinian sources said.
Nine other Palestinians, including a child and at least two fighters, were wounded by Israeli tank fire, medical sources said, and a soldier was evacuated to Israel in a serious condition after a Palestinian anti-tank rocket attack.
The armed wing of Hamas also claimed to have fired three rocket-propelled grenades at a house in Beit Hanun commandeered by the Israeli military.
More than 300 Palestinians have died in Gaza since Israel launched an offensive in late June.
Meanwhile, in the northern West Bank town of Jenin, Israeli forces shot dead a militant of the Al-Aqsa Martyrs' Brigades movement.
A military source quoted by public radio said the army would submit a plan of staggered operations seeking to take control of rocket-launching sectors of Gaza but ruled out a reoccupation of the territory.