Israeli Defence Minister Avigdor Lieberman has resigned from the conservative coalition government of Prime Minister Benjamin Netanyahu in protest over a Gaza truce.

Announcing his decision, which takes effect 48 hours after he puts it in writing, Lieberman deemed Tuesday's Egyptian-mediated deal with the Palestinian Islamist group Hamas "a capitulation to terror".

Palestinian militants and Israel held their fire late on Tuesday, bringing a relative calm to the Gaza frontier after the fiercest rocket salvoes and air strikes since the 2014 war.

The enemies made clear the pause was an armed stand-off rather than a long-term accommodation.

Since Monday, Israeli air strikes had killed seven Palestinians, at least five of them gunmen, and destroyed several buildings used by Gaza's ruling Hamas Islamists.

Rocket attacks from Gaza sent residents of southern Israel to shelters, wounding dozens and killing a Palestinian labourer.

The flare-up was triggered by a botched Israeli commando incursion on Sunday but the surge of violence has been stoked by the economic plight of the Gaza Strip, which Israel blockades in hope of isolating Hamas, an Islamist movement designated a terrorist group by the West.

The exchanges were the fiercest since the Gaza war in 2014, the third between Israel and Hamas in a decade as part of the wider Israel-Palestinian conflict. In that 50-day war, more than 2,100 Palestinians were killed Gaza, most of them civilians, along with 66 Israeli soldiers and seven civilians in Israel.

CEASEFIRE

The joint command of the Palestinian armed factions in Gaza said in a statement on Tuesday they would abide by a ceasefire "as long as the Zionist enemy does the same".

Hamas, which has ruled the packed and impoverished coastal enclave since 2007, claimed victory. Spokesman Abdel-Latif Al-Qanoua said the militants had "taught the enemy a harsh lesson and made it pay for its crimes".

While many Palestinians celebrated in the streets, in Israel the response was mixed. Dozens of residents of bombarded southern villages blocked an Israeli traffic junction and burned tyres in protest at what they deemed a government capitulation.

Hamas and other armed factions had fired more than 400 rockets or mortar bombs across the fenced border after carrying out a guided-missile attack on Monday on a bus that wounded an Israeli soldier, the military said.

Hamas said it was retaliating for a Israeli commando mission in Gaza on Sunday that erupted into gunfight when uncovered by militants. A Hamas commander, six other gunmen and an Israeli colonel were killed in that incident.

Israel said its Iron Dome anti-rocket system intercepted more than 100 projectiles from Gaza on Monday and Tuesday.

Responding with dozens of air strikes, Israel hit buildings that included a Hamas intelligence compound and the studios of Hamas's Al-Aqsa Television.

The Israeli military said its air attacks took out a rocket-launching squad and fired at several Palestinians infiltrating through the border fence around Gaza. 

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