Two rockets fired from Gaza targeted Tel Aviv today in the first attack on Israel's commercial capital in 20 years.
The incident raises the stakes in a showdown between Israel and the Palestinians that is moving towards all-out war.
The Palestinian death toll now stands at 16, five of them children.
A Hamas rocket earlier killed three Israelis north of Gaza, the first Israeli fatalities of the latest conflict to hit the coastal region.
Israeli warplanes bombed targets in and around Gaza city for a second day, shaking tall buildings.
The Israeli armed forces spokesman said the military had received the green light to call in up to 30,000 reserve troops.
The conflict escalated yesterday when Israel killed Hamas's military chief.
French President Francois Hollande has begun talks with Israeli Prime Minister Benjamin Netanyahu to avoid any further escalation.
Egypt's new Islamist President Mohamed Mursi, viewed by Hamas as a protector, led a chorus of denunciation of the Israeli strikes by Palestinian allies.
Mr Mursi's prime minister, Hisham Kandil, will visit Gaza tomorrow with other Egyptian officials in a show of support for the enclave, an Egyptian cabinet official said.
Israel, which has promised that the delegation will come to no harm, says its attack is in response to escalating missile strikes from Gaza.
Air raid sirens sent residents running for shelter in Tel Aviv, a Mediterranean city that has not been hit by a rocket since the 1991 Gulf War.
Israeli sources said one rocket landed in the sea, while another missile landed in an uninhabited area of the Tel Aviv suburbs.
The Tel Aviv metropolitan area holds more than three million people, more than 40% of Israel's population.
"This escalation will come with a price that the other side will have to pay," Israeli Defence Minister Ehud Barak said in a television broadcast shortly after the strike.
Speaking at the same time in Gaza, Hamas's prime minister, Ismail Haniyeh, urged Egypt to do more to help the Palestinians.
"We call upon the brothers in Egypt to take the measures that will deter this enemy," he said.
Talks held to quell violence
US President Barack Obama and UN Secretary General Ban Ki-moon each held separate talks with Mr Netanyahu and the Egyptian president last night.
In a statement, the White House said Mr Obama urged the Israeli leader to make every effort to avoid civilian casualties and reiterated US support for Israel's right to self-defence in light of rocket attacks from Gaza.
The White House said Mr Obama and Mr Mursi agreed on the importance of "working to de-escalate the situation as quickly as possible".
The UN has said Mr Ban voiced his expectation that "Israeli reactions are measured so as not to provoke a new cycle of bloodshed" and discussed with Mr Mursi "the need to prevent any further deterioration".
Tánaiste and Minister for Foreign Affairs Eamon Gilmore has criticised the violence.
He said: "This latest round of violence, which was triggered by sustained rocket attacks on towns in Israel and has escalated with the targeted killing of a senior Hamas leader, could lead to the further death and suffering of innocent Israeli and Palestinian civilians.
"The risks from an escalation of violence on either side are all too apparent. I urge both sides to immediately cease these attacks and remove the threat they pose to the lives and safety of innocent people".