Israeli leaders are warning of an imminent conflagration in Gaza after Palestinian militants aimed rockets at the southern city of Ashkelon.
The deputy defence minister said the stepped-up rocket fire would trigger what he called a "bigger holocaust" in the Hamas-controlled coastal strip.
Israeli air strikes have killed about 30 Palestinians, including six children in the past two days.
Israel has activated its early warning system in Ashkelon for the first time.
One rocket hit a block of flats in the city of 120,000 inhabitants about 10km (six miles) north of the Gaza Strip breaking through the roof and slicing through three floors below.
Israeli city Ashkelon activates warning system after Palestinian rocket hits
Israeli air raids continue, with four wounded in Jabaliya
Four children killed near Jabaliya refugee camp
Hamas militant killed near Shati refugee camp
Hamas militant killed near Beit Hanoun
Three Hamas militants and two from PRC group killed in Gaza City
Six-month-old boy killed near interior ministry
Five Hamas militants near Khan Younis
Islamic Jihad militant near Bureij refugee camp
"The more [rocket] fire intensifies and the rockets reach a longer range, they (the Palestinians) will bring upon themselves a bigger holocaust because we will use all our might to defend ourselves," Matan Vilnai told Israeli army radio.
Correspondents say the "holocaust" is a term rarely used in Israel outside discussions of the Nazi genocide during World War II.
Separately, the chairman of the parliamentary defence and foreign affairs committee said Israel troops must topple the Hamas movement in Gaza and take over areas used to fire rockets.
"The state of Israel must make a strategic decision to order the army to prepare quickly," Tzachi Hanegbi told Israel Radio.
Israeli aircraft launched at least three raids on Gaza overnight. In one attack in the Jabaliya area at least four people were wounded including two children.
One Israeli civilian was killed in rocket fire on Wednesday. Of the Palestinian fatalities, about half have been civilians, including at least six children.
Hamas has called on Palestinians and Arabs to hold protests after Friday prayers against Israel's raids on Gaza.
Israeli security officials said that the rockets fired at Ashkelon have been Grad-type imports made in Iran with a range of about 22km.
It is the first time Israel has ordered Code Red sirens to be sounded in Ashkelon as well as Sderot, the town almost abutting Gaza territory where the civilian was killed.
Reports say dozens of soldiers in orange berets from the Israeli military's Home Front Command have been hanging posters around the city instructing residents on what to do when the warning sounds.
"It's a city with large facilities - a huge soccer stadium, and a basketball stadium, and a beach. No-one is ready for this," Ashkelon mayor Roni Mehatzri told Israel Radio.
Israel's leadership has been under pressure in some quarters to launch a ground invasion of Gaza to end the rocket fire. However, a recent opinion poll also indicated a majority of Israel's favour a negotiated truce with Hamas.
Hamas has been shunned by the West for refusing to recognise Israel's legitimacy, it beat the Fatah faction in a parliamentary election two years ago.
Hamas says it will cease fire if Israel stops military operations in Palestinian areas. It is also demanding an end to the Israeli-led blockade of Gaza that has cut supplies to its 1.5m inhabitants.