Israeli air strikes killed 11 Palestinians in Gaza, including the wife and infant son of Hamas's military leader, Mohammed Deif, in what the group said on Wednesday was an attempt to assassinate him after a ceasefire collapsed.
Accusing Israel of opening a "gateway to hell", Hamas fired rockets at Tel Aviv and Jerusalem. The attacks caused no casualties but demonstrated the Islamist movement could still bring the Gaza war to Israel's heartland despite heavy Israeli bombardments in the five-week-old conflict.
Israel's military said it had carried out 60 air strikes on the Gaza Strip since hostilities resumed on Tuesday, and that Palestinians launched more than 80 rocket salvoes, some intercepted by the Israeli anti-missile Iron Dome system.
The violence shattered a 10-day period of calm, the longest break from fighting since Israel launched its Gaza offensive on July 8 with the declared aim of ending Palestinian rocket fire into its territory.
The Palestinian Health Ministry says 2,029 people, most of them civilians, have been killed in the Gaza Strip. Israel says it has killed hundreds of Palestinian militants in fighting that the United Nations says has displaced about 425,000 people in the territory of 1.8 million.
Sixty-four Israeli soldiers and three civilians in Israel have also been killed in the most deadly and destructive war Hamas and Israel have fought since Israel withdrew unilaterally from Gaza in 2005, before Hamas seized the territory in 2007.
Hamas said an Israeli bombing of a house in Gaza City late on Tuesday was an attempt to assassinate Deif, widely believed to be masterminding the Islamist group's military campaign from underground bunkers.
There was no official confirmation from Israel, which has targeted Deif in air strikes at least four times since the mid-1990s, holding him responsible for the deaths of dozens of its citizens in suicide bombings.
"I am convinced that if there was intelligence that Mohammed Deif was not inside the home, then we would not have bombed it," Yaakov Perry, Israel's science minister and former security chief, told Army Radio. A Hamas official said that Deif does not use the house.
Three bodies were pulled from the rubble. Hospital officials identified them as Deif's wife, his seven-month-old son and a 20-year-old man.
Accusing Hamas of breaking the truce with rocket fire eight hours before it was to have expired, Israel recalled its negotiators from truce talks in Cairo on Tuesday, leaving the fate of the Egyptian-brokered efforts hanging in the balance.
Palestinian negotiators walked out of the talks later, blaming Israel for their failure. "Israel thwarted the contacts that could have brought peace," chief Palestinian negotiator Azzam al-Ahmed said.
Rejecting the charge, Mark Regev, a spokesman for Prime Minister Benjamin Netanyahu, said Gaza rocket fire "made continuation of talks impossible".
"The Cairo process was built on a total and complete cessation of all hostilities and so when rockets were fired from Gaza, not only was it a clear violation of the ceasefire but it also destroyed the premise upon which the talks were based," Regev told Reuters.
Israel instructed its civilians to open bomb shelters as far as 80 km (50 miles) from Gaza, or beyond the Tel Aviv area, and the military called up 2,000 reservists.
United Nations Secretary General Ban Ki-moon condemned the breach of the ceasefire, saying in a statement he was "gravely disappointed by the return to hostilities" and urging the sides not to allow matters to escalate.
Egyptian mediators have been struggling to end the Gaza conflict and seal a deal that would open the way for reconstruction aid to flow into the territory of 1.8 million people, where thousands of homes have been destroyed.
The Palestinians want Egypt and Israel to lift their blockades of the economically crippled Gaza Strip that predated the Israeli offensive.
Israel, like Egypt, views Hamas as a security threat and wants guarantees that any removal of border restrictions will not result in militant groups obtaining weapons.
A senior Palestinian official in Gaza said sticking points to an agreement have been Hamas's demands to build a seaport and an airport, which Israel wants to discuss only at a later stage.
Israel has called for the disarming of militant groups in the enclave. Hamas has said that laying down its weapons is not an option, saying it will pursue its armed struggle until Israel's occupation of Palestinian lands ends.
Israel captured the West Bank, Gaza and East Jerusalem in 1967. It unilaterally withdrew from Gaza in 2005. The Palestinians want Gaza and the West Bank for an independent state with its capital in East Jerusalem.