Israeli helicopters fired into the Gaza Strip on Saturday, killing one Palestinian militant in what local residents said was the fiercest exchange between Israeli forces and militants since a November truce.
The residents said the helicopters fired at least two missiles at militants near the Jabalya refugee camp.
An Israeli army spokesman said the helicopters fired at "suspicious movements" that were identified several times near the border fence where militants had been operating and trying to plant explosive devices.
Islamic Jihad said its militants and members of another group had been mounting an operation near the fence when the exchange of fire occurred.
A member of the Democratic Front for the Liberation of Palestine was killed in the exchange, Islamic Jihad said.
The residents said Israeli tanks had entered the area but the army denied this.
On Monday, Israeli Defence Minister Amir Peretz authorised the army to carry out limited operations just inside Gaza against militants, despite a ceasefire agreement reached between Israel and the Palestinians in November.
Some militant groups have carried on firing rockets into Israel from Gaza despite the truce, and Peretz said the Jewish state would "not allow the continued strengthening and arming" of militants in the coastal strip.
On Wednesday, Israeli troops shot at three armed men, killing one and wounding at least one other. The men were planting an explosive device near the Gaza border fence.
Israeli security sources say the armed wing of the Islamist Hamas movement has been digging tunnels and upgrading its rocket arsenal for a possible confrontation.
Armed members of Hamas and President Mahmoud Abbas's Fatah faction clashed in the Gaza Strip on Friday. Two militants and a young boy were wounded.
Tensions are high in Gaza despite the formation of a unity government on March 17 between Hamas, which defeated Fatah in elections more than a year ago, and Abbas's secular faction.