The casualties were caused in two rocket attacks, which also damaged several buildings in the town, where six people have died in such strikes since the second Palestinian uprising broke out in September 2000.
Other rockets exploded elsewhere in Sderot and an open field, causing no casualties or damage, the sources said.
The attacks came with Israeli Prime Minister Ehud Olmert set to convene his weekly cabinet meeting for talks to focus on the Gaza Strip and steps that can be taken to stop the rocket fire.
A mother of two was killed in a rocket attack on Sderot last Wednesday, the first such deadly strike since Israel withdrew all troops and settlers from the Gaza Strip in 2005.
The continued rocket fire and the abduction of a soldier in a cross-border raid has seen Israel conduct military operations against the Gaza Strip on and off since late June.
More than 300 Palestinians have been killed in the territory since then, but the rocket attacks have not stopped and the conscript not retrieved.
An Israeli army spokesman said that around 1,000 rockets have been fired by Palestinians from Gaza into the Jewish state since the withdrawal in 2005.
Various Israeli ministers have called for "targeted killing" raids against senior officials in the ruling Palestinian party Hamas, whose armed wing has claimed rocket attacks and joint responsibility for the solider's abduction.

Copyright AFP (Agence France-Presse), 2006