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Israeli soldiers stand guard near the border with the Gaza strip. (AFP/Jack Guez)
General Yoav Golan, the army's commander for Israel's southern region, said four Palestinians were killed in the clash and a subsequent gunbattle, and that one of the soldiers died when his own grenade exploded.
Ezzedine al-Qassam Brigade, the military wing of the Palestinian Islamist movement Hamas which rules Gaza, and another militant group, Islamic Jihad, said their fighters were involved in the clashes.
The violence added to the strain on Israel, which is already under international pressure from the United States and Europe to halt Jewish settlements in east Jerusalem, which Israel calls its capital and which the Palestinians regard as the capital of their future state.
European Union foreign affairs chief Catherine Ashton said she was "extremely concerned" by the latest violence and called on both sides to exercise restraint.
"Such actions undermine current efforts to facilitate a resumption of the peace process," she said in Brussels.
A huge explosion followed by tank fire on Israel's side of the border with Gaza was the backdrop to Netanyahu's meeting with his inner circle over US demands for more peace-promoting concessions.
Even as the prime minister met behind closed doors, his government said there was no change in Israel's contentious settlements policy.
"The prime minister's position is that there is no change in Israel's policy on Jerusalem that has been pursued by all governments of Israel for the last 42 years," his office said.
And the Haaretz newspaper cited him as saying he has no intention of breaking his right-wing coalition to form a more centrist alliance.
The spat with Washington erupted after Netanyahu's government announced it would build 1,600 new homes for Jewish settlers in east Jerusalem as US Vice President Joe Biden was in the region earlier this month hoping to promote peace talks.
On the eve of the Arab summit which opens in Libya on Saturday, Arab League chief Amr Mussa said Israel must scrap its planned construction in annexed east Jerusalem before indirect peace talks with the Palestinians can take off.
"Indirect Palestinian-Israeli peace talks depend on freezing settlements and especially on cancelling plans by Israel to build 1,600 settlements in (east) Jerusalem," said Mussa.
Netanyahu's carefully coordinated dressing down on a trip to Washington earlier this week was reportedly accompanied by demands for wide-ranging measures including the extension of a partial settlement halt and the release of hundreds of Palestinian prisoners.
"We will consider some of the American requirements but we will not accept them all," said Defence Minister Ehud Barak who accompanied Netanyahu to Washington.
Meanwhile, in earlier violence on Friday, four Palestinians were seriously wounded by shrapnel from Israeli tank fire, Palestinian medical sources and witnesses said.
One helicopter fired a rocket on Palestinian fighters, said the witnesses.
On Friday morning, the Israeli army said Palestinian militants had fired a rocket from the Gaza Strip into Israel without causing any casualties or damage. The rocket apparently struck an empty field.
Israel routinely responds to rocket attacks with air strikes targeting smuggling tunnels on the Gaza-Egypt border and workshops which Israel says are used to make rockets.
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Ezzedine al-Qassam Brigade, the military wing of the Palestinian Islamist movement Hamas which rules Gaza, and another militant group, Islamic Jihad, said their fighters were involved in the clashes.
The violence added to the strain on Israel, which is already under international pressure from the United States and Europe to halt Jewish settlements in east Jerusalem, which Israel calls its capital and which the Palestinians regard as the capital of their future state.
European Union foreign affairs chief Catherine Ashton said she was "extremely concerned" by the latest violence and called on both sides to exercise restraint.
"Such actions undermine current efforts to facilitate a resumption of the peace process," she said in Brussels.
A huge explosion followed by tank fire on Israel's side of the border with Gaza was the backdrop to Netanyahu's meeting with his inner circle over US demands for more peace-promoting concessions.
Even as the prime minister met behind closed doors, his government said there was no change in Israel's contentious settlements policy.
"The prime minister's position is that there is no change in Israel's policy on Jerusalem that has been pursued by all governments of Israel for the last 42 years," his office said.
And the Haaretz newspaper cited him as saying he has no intention of breaking his right-wing coalition to form a more centrist alliance.
The spat with Washington erupted after Netanyahu's government announced it would build 1,600 new homes for Jewish settlers in east Jerusalem as US Vice President Joe Biden was in the region earlier this month hoping to promote peace talks.
On the eve of the Arab summit which opens in Libya on Saturday, Arab League chief Amr Mussa said Israel must scrap its planned construction in annexed east Jerusalem before indirect peace talks with the Palestinians can take off.
"Indirect Palestinian-Israeli peace talks depend on freezing settlements and especially on cancelling plans by Israel to build 1,600 settlements in (east) Jerusalem," said Mussa.
Netanyahu's carefully coordinated dressing down on a trip to Washington earlier this week was reportedly accompanied by demands for wide-ranging measures including the extension of a partial settlement halt and the release of hundreds of Palestinian prisoners.
"We will consider some of the American requirements but we will not accept them all," said Defence Minister Ehud Barak who accompanied Netanyahu to Washington.
Meanwhile, in earlier violence on Friday, four Palestinians were seriously wounded by shrapnel from Israeli tank fire, Palestinian medical sources and witnesses said.
One helicopter fired a rocket on Palestinian fighters, said the witnesses.
On Friday morning, the Israeli army said Palestinian militants had fired a rocket from the Gaza Strip into Israel without causing any casualties or damage. The rocket apparently struck an empty field.
Israel routinely responds to rocket attacks with air strikes targeting smuggling tunnels on the Gaza-Egypt border and workshops which Israel says are used to make rockets.
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