Israel's army has said it was striking a "wide range" of Palestinian militant targets in Gaza after a ceasefire came into force, responding to rocket fire moments earlier.
In a statement send at 11.33pm local time, the army said: "In response to rockets fired toward Israeli territory, the (military) is currently striking a wide range of targets belonging to the Islamic Jihad terrorist organisation in the Gaza Strip."
The army had issued multiple air raid warnings of incoming rocket fire moments before the truce.
Israeli Prime Minister Yair Lapid's office had earlier confirmed an Egypt-brokered ceasefire would take effect this evening.
A statement said: "A ceasefire will take effect tonight at 23.30 (8.30GMT). The State of Israel thanks Egypt for its efforts.
"If the ceasefire is violated, the State of Israel maintains the right to respond strongly."
Islamic Jihad militants in Gaza said they had agreed to the ceasefire.
"A short while ago the wording of the Egyptian truce agreement was reached, which contains Egypt's commitment to work towards the release of two prisoners, (Bassem) al-Saadi and (Khalil) Awawdeh," senior Islamic Jihad member Mohammad al-Hindi said in a statement.
Gaza's health ministry announced ten more deaths, among them nine children, raising the toll to 41 since fighting began on Friday.
The ministry said more than 300 people have been wounded in Gaza, which is run by the Islamist group Hamas.
Two Israelis have been injured by shrapnel over the same period, medics reported.
An AFP photographer saw two rockets being intercepted in the centre of Israel's commercial capital Tel Aviv this evening.
Since Friday, Israel has carried out heavy aerial and artillery bombardment of Islamic Jihad positions in Gaza, with the militants firing hundreds of rockets in retaliation.
Buildings have been reduced to rubble in Gaza, while Israelis have been forced to shelter from a barrage of rockets.
Dalia Harel, a resident in the Israeli town of Sderot close to the Gaza border, said she was "disappointed" at news of a truce despite her five children being "traumatised".
"We're tired of having a military operation every year," she said. "We need our military and political leaders to get it over with once and for all ... of course we're not for war, but we can't go on like this."
Islamic Jihad extended its barrage earlier today to fire two rockets targeting Jerusalem, but they were shot down by the Israeli army.
The military has said the entire "senior leadership of the military wing of the Islamic Jihad in Gaza has been neutralised".
Muhammad Abu Salmiya, director general of the Shifa hospital in Gaza, said medics were treating wounded people in a "very bad condition", warning of dire shortages of drugs and fuel to run power generators.
"Every minute we receive injured people," he said earlier Sunday.
The Gaza health ministry said 15 children were among the 41 dead.
But Israel said it had "irrefutable" evidence that a stray rocket fired by Islamic Jihad was responsible for the deaths of several children in Gaza's northern Jabalia area on Saturday.
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The army said it had struck 139 Islamic Jihad positions, with the militants firing over 600 rockets and mortars, but with more than 100 of those projectiles falling short inside Gaza.
Amid the high tensions, Jews in Israel-annexed east Jerusalem marked the Tisha Be'av fasting day Sunday at the Al-Aqsa mosque compound, known in Judaism as the Temple Mount.
Some Palestinians shouted "God is greatest" in response, and an AFP photographer was briefly detained by Israeli police, but commemorations passed without major incident.
Israel has said it was necessary to launch a "pre-emptive" operation Friday against Islamic Jihad, which it said was planning an imminent attack.
The army has killed senior leaders of Islamic Jihad in Gaza, including Taysir al-Jabari in Gaza City and Khaled Mansour in Rafah in the south.
In southern and central Israel, civilians were forced into air raid shelters. Two people were hospitalised with shrapnel wounds and 13 others lightly hurt while running for safety, the Magen David Adom emergency service said.
Hamas's response to the violence remains critical, with spokesman Fawzi Barhoum offering the group's support to Islamic Jihad on Sunday, but stopping short of saying they would take part.
Islamic Jihad is aligned with Hamas but often acts independently. Hamas has fought four wars with Israel since seizing control of Gaza in 2007, including the conflict last May.