Israeli Defence Minister Avigdor Lieberman has announced his resignation in protest at a Gaza ceasefire that he called a "capitulation to terror", weakening Prime Minister Benjamin Netanyahu's coalition government.

"Were I to stay in office, I would not be able to look southern residents in the eye," Mr Lieberman told reporters, referring to Israelis subjected to Palestinian rocket attacks before yesterday's truce took hold.

Mr Lieberman said his resignation, which will come into effect 48 hours after he submits a formal letter to Mr Netanyahu, also withdraws his far-right Israel Beitenu party from the coalition.

Mr Netanyahu will take over the defence portfolio himself, his party said.

The loss of Israel Beitenu's five seats will leave him with control of just 61 of the 120 seats in parliament, a year before Israel's next election.

There has been speculation that Mr Netanyahu, who has high approval ratings despite being dogged by multiple corruption investigations, may bring forward the ballot.

Mr Lieberman's decision to quit is being seen as an attempt to poach votes from Mr Netanyahu and far-right cabinet rival Naftali Bennett of the Jewish Home party, ahead of an election.

Mr Netanyahu's Likud party played down the option of an early poll.

Violence continues on lower scale in Gaza

Israel has fought three wars in Gaza since the Palestinian militant group Hamas took over the enclave in 2007.

The latest outbreak began on Sunday with a botched Israeli special forces operation in Gaza that turned deadly and prompted Hamas to vow revenge.

Palestinian militants responded with rocket and mortar fire.

An anti-tank missile hit a bus that Hamas says was being used by Israeli soldiers.

A soldier was severely wounded in the attack.

More than 460 rockets have been fired into Israel by militants since Monday night, while Israeli aircraft have hit 160 militant targets in response.

Seven Palestinians were killed in Gaza as Israeli strikes targeted militants and flattened buildings.

Violence continued on a lower scale today, with Palestinians saying a Gaza fisherman was shot dead by Israeli forces.

An Israeli military spokeswoman said the troops across the border identified a suspect approaching the Gaza fence and opened fire at him.

In a separate incident, the military said troops captured a Palestinian who tried to cut through the fence and threw grenades at them.

UN fails to agree on crisis

The United Nations Security Council has met behind closed doors to discuss the escalation of violence in Gaza but diplomats said there was no agreement on how to address the crisis.

The meeting was requested by Kuwait, which represents Arab countries at the council, and Bolivia following the worst flare-up in Gaza since the 2014 war between Hamas and Israel.

There was no statement from the council on the crisis.

Such statements are agreed by consensus by all 15 council members.