Tensions escalated on Thursday between Israel and Palestinian armed groups, as they engaged in one of the worst exchanges of fire since the 2014 Gaza war.

Israel launched strikes at five targets in southern Gaza late Wednesday, four more targets in northern Gaza early Thursday, and then at another four targets in the south later on Thursday, in response to ongoing mortar attacks on Israeli troops along the border.

The Israeli military said that during ongoing searches along the Gaza-Israel border, it had found a tunnel dug by Palestinian militants to carry out attacks, running underneath the southern Gaza border at a depth of about 27-29 metres.

It was not yet clear how long it was, but the military said it probably reached far into Israel.

Since the 2014 war, Hamas, the Islamist movement in de facto control of the Gaza Strip, had "tolerated" Israeli troops entering 100 metres into the Gaza Strip while clearing the border area, a military spokesman said. 

But this time, Israeli troops digging there came under mortar fire, Lieutenant-Colonel Peter Lerner said.

It was the second attack tunnel uncovered by Israel in one month.

One target struck by Israel early on Thursday in retaliation against the mortar fire was a goldsmith workshop in southern Gaza City, residents said. Israel says it has intelligence on which workshops are used to produce weapons. 

A 65-year-old Palestinian man and three children living near the workshop were injured, said Gaza Strip Health Ministry spokesman Ashraf al-Qedra. The four were taken to hospital with light to moderate shrapnel injuries, he said.

On Thursday, the Islamic Jihad armed group claimed responsibility for firing five mortar shells at the Israeli ground troops operating near the Gaza-Israel border fence.

It said it was the first time since the 2014 Gaza war that it had done so.

Israel and Hamas accused each other of escalating tensions over the volatile territory.

Sources close to Hamas, who spoke on condition of anonymity, said that Egypt had intervened between Hamas and Israel to defuse the growing tension.

Musa Abu Marzooq, a top Hamas leader based in Qatar, wrote on his Facebook page in Arabic that the two sides had accepted an Egyptian call to return to a fragile ceasefire that has largely remained in place since the 2014 Gaza war.

Israeli Prime Minister Benjamin Netanyahu convened his security cabinet for Friday morning to discuss the latest flare-up.

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