Two Palestinians have been killed in Gaza City after the Israeli military launched a raid deep into the Gaza Strip.

An Israeli man was also seriously injured when Palestinian fighters fired rockets at the town of Sderot during a visit by Louise Arbour, the UN high commissioner for human rights, following the incursion on Tuesday.

A Hamas fighter and a 70-year-old Palestinian woman were killed during the fighting in the Zeitoun area of Gaza City.

A total of 370 Palestinians and four Israelis have died since Israel intensified its attacks on Gaza following the capture of an Israeli soldier in a cross-border raid in June.

Speaking after the rocket attack on Sderot, Christopher Gunness, spokesman for the Office of the UN Special Coordinator for the Middle East Peace Process, said: "They (the rockets) landed a few hundred yards away from where we were."

Arbour arrived in Sderot after a visit to the Gaza Strip as part of a five-day tour of the Palestinian territories and Israel.

Israeli forces also entered the nearby Jabaliya refugee camp, as well as the northern town of Beit Lahiya.

Hospital officials named the dead fighter as Aiman Hassanein, a senior member of the governing Hamas organisation.

Witnesses said he was killed during an exchange of fire and that his brother was detained by troops.

The incursion came hours after an Israeli missile attack on a car in Gaza killed two Hamas fighters and injured five bystanders late on Monday night.

The Israeli defence minister, Amir Peretz, said on Monday that Israel would continue its military operations in Gaza but had no intention of reoccupying the area.

PHOTO CAPTION

Palestinian mourners carry the national flag-draped body of Tarek Ziad Taha during his funeral procession in the northern West Bank town of Qalqiliya. (AFP)