Iran has launched multiple waves of missiles at Israel, the Israeli military said, after US President Donald Trump postponed a threat to bomb Iran's power grid because of what he described as productive talks with Iranian officials.
The missiles triggered air raid sirens in parts of Israel, including Tel Aviv, where blasts from interceptions were heard.
In one attack, homes in northern Israel were damaged by falling debris following an interception.
No deaths were reported.
Mr Trump wrote on his Truth Social platform that the US and Iran had held "very good and productive" conversations about a "complete and total resolution of hostilities in the Middle East".
As a result, he said, he was postponing for five days a plan to hit Iran's energy grid.
His announcement sent share prices higher and oil prices sharply lower to below $100 a barrel.
Those gains were in jeopardy however, after Iran's powerful parliament speaker Mohammad Baqer Qalibaf - who an Israeli official and two other sources familiar with the matter said was the interlocutor in the talks on the Iranian side - said no negotiations had taken place.
"No negotiations have been held with the US, and fake news is used to manipulate the financial and oil markets and escape the quagmire in which the US and Israel are trapped," he wrote on X.
Iran's elite Revolutionary Guards (IRGC) said they were launching fresh attacks on US targets, and described Mr Trump's words as "psychological operations" that were "worn out" and having no impact on Tehran's fight.
Global markets rallied in relief overnight after Mr Trump added five days to his Saturday ultimatum for Iran to reopen the Strait of Hormuz - a conduit for about 20% of the world's oil and liquefied natural gas - within 48 hours.
However, those gains were under threat as markets weighed the conflicting messages from Tehran and Washington.
US Treasury yields pushed higher and the dollar regained lost ground as the world continues to grapple with an energy shock triggered by Iran's threat to shipping in the strait.
'Major points of agreement'
Mr Trump told reporters his special envoy Steve Witkoff and son-in-law Jared Kushner, who had been negotiating with Iran before the war, had held discussions with a top Iranian official.
"We have had very, very strong talks. We'll see where they lead. We have major points of agreement, I would say, almost all points of agreement," he said.
A European official said that while there had been no direct negotiations between the two nations, Egypt, Pakistan and Gulf states were relaying messages.
A Pakistani official and a second source told Reuters that direct talks on ending the war could be held in Islamabad as soon as this week.
Israeli Prime Minister Benjamin Netanyahu said in a video statement that he spoke with Mr Trump and that Israel would press on with attacks in Lebanon and Iran.
However, Mr Netanyahu said Mr Trump believed there was a possibility of "leveraging the mighty achievements obtained by the IDF (Israel Defence Forces) and the US military, in order to realise the goals of the war in a deal - a deal that will preserve our vital interests."
Although there was no immediate confirmation that talks had taken place as described by Mr Trump, Iran's foreign ministry described initiatives to reduce tensions.
It said Iran's Foreign Minister Abbas Araqchi had reviewed developments related to the Strait of Hormuz with his Omani counterpart and agreed to continue consultations between the two countries.
The Pakistani official said US Vice President JD Vance, as well as Mr Witkoff and Mr Kushner, were expected to meet Iranian officials in Islamabad this week, following a call between Mr Trump and Pakistan's army chief Asim Munir.
The White House confirmed Mr Trump's call with Mr Munir.
Iranian media reported that Iran's President Masoud Pezeshkian and Pakistani Prime Minister Shehbaz Sharif discussed the impact of the war on regional and global security.
Iran has effectively closed the key Strait of Hormuz since the United States and Israel launched their war on the country on 28 February.
More than 2,000 people have been killed in the war.
Iran had responded to Mr Trump's threats to strike its power plants by saying it would hammer the infrastructure of US allies in the Middle East, raising the prospect that an extreme disruption to global energy supplies could last longer than previously expected.
