The Islamist movement Hamas swiftly warned that Israel had "started a war" with its targeted killings, while Al-Aqsa Martyrs Brigades, another militant group, said renounced an informal truce.

The two militants were killed instantly when an Israeli aircraft fired a missile into their car. At least 10 civilians were wounded when the vehicle exploded near Jabaliya refugee camp in northern Gaza, medical sources said.

The victims were named as Fayez Abu al-Qaraa, a senior militant leader for Gaza, and Hassan al-Madhun, commander of an armed wing of Al-Aqsa, which is loosely affiliated to Palestinian leader Mahmud Abbas's Fatah party.

Qaraa, 37, was the first Hamas member killed in Israel's offensive on militants launched after a deadly Palestinian suicide bombing in northern Israel last Wednesday.

His killing provoked a furious response from the main Islamist faction, which has so far largely stayed out of the latest hike in Middle East violence.

"Israel has started a war with this assassination and it will pay a heavy price," a senior Hamas official warned, speaking on condition of anonymity.

"You will see, not hear our response. The only language the enemy understands is war," said Hamas's armed wing, the Ezzedine al-Qassam Brigades.

"To hell with the truce" was the reaction from Al-Aqsa Martyrs Brigades. The group announced in a statement that it had ordered a "mobilisation" of its supporters.

Israel's army said the air force had attacked a vehicle carrying senior Al-Aqsa activist Madhun, whom security sources held responsible for a series of deadly attacks which left 20 Israelis dead.

Israeli sources said Madhum was behind an attack at the Karni checkpoint between Israel and Gaza last January that killed six Israeli soldiers.

He and Qaraa together helped dispatch two suicide bombers to Ashdod in southern Israel in March 2004, killing 10 people, sources on both sides added.

In the West Bank, fierce clashes erupted in Jenin as dozens of Israeli tanks, jeeps and bulldozers moved to surround a building where several Islamic Jihad gunmen were holed up, Palestinian security sources and witnesses said.

Two Palestinians were wounded, the sources said, while troops arrested Adib Abu Hussein, 30, a local chief of Al-Aqsa.

Abbas spokesman Nabil Abu Rudeina demanded that the international community intervene immediately to put a stop to Israeli attacks, saying the Palestinian Authority and factions were committed to implementing a de facto truce.

"This Israeli military escalation aims to destroy Palestinian Authority efforts to implement the understanding of quiet. It means Israel does not want quiet," he said.

"We are asking the international community, especially the United States to move immediately to stop all Israeli aggression," he added.

Militant factions have been loosely adhering to an informal truce in anti-Israeli attacks since the beginning of the year.

At least 13 Palestinians have been killed in Israeli army operations in the West Bank and air strikes over the Gaza Strip since a Jihad bomber blew himself up in northern Israel on October 26.

The violence came the same day as Israel's security cabinet approved an agreement with Cairo to reopen the Rafah border terminal between the Gaza Strip and Egypt under EU supervision.

The green light should allow for Rafah to function under Egyptian and Palestinian control, with European observers and Israeli camera surveillance.

However, Palestinian ministers denied any final deal had been reached and Israel is still locked in negotiations with the European Union over precisely what kind of presence the 25-nation bloc will adopt at Rafah.

The fate of the terminal has been in limbo since before Israeli ground troops withdrew from Gaza in mid-September.