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Israel Defense Forces withdrew from Gaza City early Sunday morning after operations in which at least 12 Palestinians were killed and dozens wounded, in the deepest incursion in more than two years of fighting, security and hospital officials said.

Witnesses said dozens of armored vehicles backed by
missile-firing helicopters rumbled into the Zaitoun neighbourhood of Gaza City, a stronghold of the militant Islamic group Hamas that has carried out scores of suicide attacks.

"In the last few weeks and over the past weekend we have seen an increase in attempts by terror organizations, in the Gaza Strip and West Bank, to carry out attacks," Defense Minister Shaul Mofaz told Israel Radio Sunday morning.

Mofaz cited the 10 Kassam rockets fired by Hamas from the Gaza Strip on Friday on the Negev town of Sderot. "We must provide defense to the citizens of Israel," he said.

Security forces carried out two major operations over the weekend, the defense minister said: The first in the Beit Hanoun area of the northern Gaza Strip from where Kassam rockets were being fired and the second in Gaza City to hit the infrastructure for the production of rockets and mortars.

"The option of taking control of the Gaza Strip has been weighed in the past and is still being considered," he added.

At least 12 Palestinians were killed, three by a missile from the air, and 51 wounded, eight critically, hospital officials said. An Israeli military source said troops came under fire from gunmen with assault rifles, explosives and anti-tank missiles.

IDF troops pulled within 100 meters of the main Palestine Square, the deepest thrust into densely populated Gaza City since an uprising for statehood began in September 2000.

Soldiers stormed several buildings and snipers commandeered rooftops as tracer bullets streaked through the night sky and calls rang out from mosques for armed Palestinians to confront the Israelis, the witnesses said.

"Every man with a weapon must rush to the streets and defend Palestinian honour," loudspeakers blared amid thunderous explosions.

Soldiers blew up the family home of a Hamas militant killed in a raid on a Jewish settlement in the Gaza Strip several months ago, the witnesses said.

"We were asleep, all of a sudden the ground was shaking...I saw tanks and froze in my place," said Ahmed Nemer a Zaitoun resident.

"We squeezed in one room and awaited God's mercy. We could
hear the soldiers shouting at neighbours to open doors and come out," he said.

Early Sunday, witnesses said nine Israeli tanks took up positions in the center of Beit Hanoun, a town at the northern edge of the Gaza Strip, where Israeli forces blew up four bridges a day earlier.

At about the same time, Palestinian militants fired four short-range Kassam rockets toward a settlement in the northern Gaza Strip. IDF troops retaliated with tank fire, the witnesses said.

Maj. Gen. Abdel Razek Majaidie, head of Palestinian security in Gaza, accused Sharon of "adding a new page to his dark record. This crime against innocent civilians is another part of his continuous war against the Palestinian people and Palestinian homeland."