The army said the shootout began after airmen backing troops on a routine patrol about 1 kilometre inside the Gaza Strip identified militants approaching the soldiers, and opened fire from the air. The militants then fired at the patrol, sparking a shootout on the ground, the army said.

Hamas spokesman Abu Obeida said its fighters launched the clash

by opening fire at an Israeli undercover unit.

The Israeli military called in two air strikes on the outskirts of the Maghazi refugee camp, killing four fighters from Hamas's armed wing and a fifth Palestinian whose identity was not initially clear, local medical sources said.

Israeli troops and tanks earlier pushed across the border into the central Gaza Strip as far as the Maghazi outskirts, where they became locked in heavy firefights with Palestinian militants, medical sources and the army said.

One militant from Hamas's armed wing was killed the clashes about a kilometre (about half a mile) deep into the Gaza Strip, from which the Jewish state withdrew all troops and settlers in 2005 after 38 years of occupation.

Among the dead fighters from Hamas's Ezzedine al-Qassam Brigades were Mohammed Siam, a local leader in the armed wing. Fifteen Palestinians were also wounded, including one seriously, medics said.

The Israeli military confirmed that troops and tanks were "operating against terror infrastructure" in the central Gaza Strip.

"We identified hitting approximately 10 armed gunmen in two air strikes and exchanges of fire on the ground. Two soldiers were wounded by an RPG fired at a bulldozer in the central Gaza Strip and were evacuated," a spokesman said.

Palestinian militants also fired three mortar shells at the Erez border crossing with Israel, which exploded on the Palestinian side of the terminal, one of them causing a small fire, the spokesman added.

Witnesses said Israeli troops were also operating in the northern Gaza Strip on the outskirts of Beit Hanun, where two Palestinian militants whom the army said were attempting to fire rockets towards Israel were wounded overnight.

Although Israel has vowed to bolster pragmatic Palestinian president Mahmud Abbas and his new Western-backed emergency government based in the occupied West Bank, it has vowed to continue attacks on militants

On Saturday, Israeli troops killed seven Palestinians, including a top military commander in the Islamic Jihad group in two air strikes in Maghazi and the southern town of Khan Yunis.

Abbas sacked a Hamas-led unity government in the crisis that saw the Islamists seize control of Gaza on June 15 in a deadly takeover that humiliated the mainstream security services loyal to the president's Fatah party.

Hamas, whose radical charter calls for the destruction of Israel and which is blacklisted as terrorists in the West, remains in control of Gaza where Abbas and his new prime minister Salam Fayyad effectively have no control.

In Gaza City, Hamas's self-styled Executive Force police prevented hundreds of civil servants from going to work in keeping with orders from the sacked Hamas government stipulating a Thursday-Friday weekend, witnesses said.

Joined by the Ezzedine al-Qassam Brigades, Executive Force officers deployed outside the health, employment, agriculture, finance and foreign ministries in Gaza City to stop employees from getting to the office.

The Fayyad government decreed in the West Bank that Palestinian public servants should now on enjoy a Friday-Saturday weekend, citing economic reasons in order to maximise the number of working days with the outside world.

"To keep both sides happy, we've decided not to work anymore on Thursdays, Fridays or Saturdays because the emergency government warned those who work on Saturdays will loose their salaries," said health ministry employee Rami Hab.

The further isolation of the impoverished territory where more than 80 percent of 1.5 million residents depend on aid has raised fears of a humanitarian crisis with only limited supplies getting through Israeli borders.