Israeli troops and tanks are reported to have left the Gaza Strip after an incursion into the Hamas-controlled territory.
The action followed what is being described as the worst clash in 14-months between Israel and Gaza militants.
The violence has left two Israeli soldiers and at least one Palestinian dead and five others wounded.
Hamas has confirmed that its gunmen were involved. Observers say the group had largely held fire since its 2008-2009 war with Israel.
The latest trouble comes amid growing protest over new plans for Israeli settlement building.