Israeli aircraft attack Interior Ministry in Gaza

Tensions increased after a Hamas rocket attack on the Israeli city of Ashkelon. Picture / Reuters

GAZA - Israeli missiles tore through the Palestinian Interior Ministry in Gaza on Wednesday, causing extensive damage and wounding at least three people, as Israel kept pressure on militants to release an abducted soldier.

The night-time air strike was launched hours after militants from the governing Hamas movement fired a rocket into a main Israeli city for the first time, an attack that deepened a 10-day-old crisis.

Israeli aircraft struck the same Interior Ministry complex on June 30. The new raid largely destroyed the building and damaged adjacent apartments, where medics rushed children suffering from shock to hospital.

Israeli Prime Minister Ehud Olmert planned to consult his security cabinet later in the day on stronger military action after militants carried out their deepest rocket strike yet against Israel, government officials said.

An upgraded Qassam rocket, powered by two engines instead of the usual single motor, and flying 12km, slammed into a school yard in the coastal city of Ashkelon, the army said.

The attack in the centre of Ashkelon, a city of about 115,000 and the site of one of Israel's main power plants, caused no injuries.

But Olmert made clear the rocket had crossed a red line, even after gunmen from Hamas and two other groups stunned Israel by abducting Corporal Gilad Shalit in a cross-border raid launched from Gaza on June 25.

"This is an escalation without precedent in the terrorist war waged by the Hamas movement that now controls the Palestinian Authority," Olmert said in a speech at a US Independence Day celebration at the American ambassador's house.

"This (rocket) attack ... will have unprecedented, far-reaching consequences. The Hamas organisation will be the first to feel them," he said, after its Izz el-Deen al-Qassam Brigades claimed responsibility for the strike.

Hamas said in a statement it was not frightened by what it termed Zionist threats. Israel has hinted it could assassinate leaders of Hamas, whose government is under an international aid embargo, if Shalit is not freed.

"If blood is shed in Gaza, the streets and communities of the Zionist entity will not be spared," Hamas said.

Several hours after the rocket strike, Israeli aircraft attacked a training base used by Hamas militants in the southern Gaza Strip. Witnesses said the camp was empty, abandoned by gunmen who feared it was on Israel's target list.

On Tuesday, Israel ignored an ultimatum by three militant factions, among them Hamas' armed wing, to begin freeing 1000 Palestinian prisoners, as well as jailed women and youths.

Olmert termed the demand extortion. The factions vowed not to release any information about the 19-year-old tank gunner and pulled out of negotiations with Egyptian mediators trying to end the standoff, a Hamas political leader said.

Piling pressure on militants to release Shalit, Israeli armour moved into the southern Gaza Strip a week ago, taking up largely static positions at a disused airport.

Israel has also launched air strikes against offices of the Hamas-led government in Gaza City and sent tanks into the northern Gaza Strip, the main launching area for Qassam rockets.

However, it has stopped short of a push into Gaza towns, where fighting with militants would likely be intense.

Militants in Gaza, territory Israel quit last year after 38 years of occupation, have been firing rockets daily into southern Israel, causing few casualties.

- REUTERS