The attack was the first since President Bush's summit last week with the Israeli and Palestinian prime ministers, but Bush's top advisors say the time is still right for peace.
The violence was a slap in the face to the new Palestinian Prime Minister Mahmoud Abbas, who at last week's summit with President Bush, called on militant groups to lay down their arms, reports CBS News Correspondent Robert Berger.
At the summit, both the Israelis and Palestinians agreed to take tentative steps along a peace blueprint to Palestinian statehood by 2005. Abbas pledged to halt attacks on Israelis; Israeli Prime Minister Ariel Sharon agreed to dismantle unauthorized outposts in the West Bank.
Secretary of State Colin Powell made clear during broadcast interviews on Sunday that he still supports Abbas and expects Sharon to do as he promised and begin taking down settlements despite the latest attack.
Three armed groups — Hamas, Islamic Jihad and the Al Aqsa Martyrs' Brigade — claimed joint responsibility for the shooting. A leaflet gave the names of the gunmen, all in their early 20s, one from each group.
"This joint operation was committed to confirm our people's united choice of holy war and resistance until the end of occupation over our land and holy places," the leaflet said.
The Al Aqsa militia is linked to the ruling Fatah movement, and its involvement in the shooting was a direct challenge to Palestinian Prime Minister Mahmoud Abbas, a senior Fatah member, who has been trying to persuade militants to halt attacks on Israelis.
The Israeli military declined comment on the Israeli dead and wounded. However, medics and an Israeli settler spokesman said four Israelis were killed and four were wounded in the shooting.
Sharon adviser Dore Gold said Abbas had committed himself to an immediate halt to attacks on Israelis as called for in the road map, yet the attacks have not stopped.
"This must come to an end," he said.
Palestinian Foreign Minister Nabil Shaath said Israel had provoked the attacks by not easing restrictions on Palestinians enough in the wake of the summit and by killing two Hamas militants Thursday night near the West Bank city of Tulkarem.
"This requires an immediate discussion with the Palestinian factions to bring an end to the fighting and there is an effort from all sides to make sure that this happens," Shaath said.
The gunmen, who wore Israeli army uniforms, attacked the army post near the Erez crossing into Israel just after dawn. The post is near an Israeli-run industrial zone at the northern end of the Gaza Strip.
The shooting underscored the determination of militants to derail the so-called "road map" to Mideast peace, which envisions a Palestinian state by 2005.
Abdel Aziz Rantisi, a Hamas leader, said the attack was intended to send a message to the Palestinian leadership that Palestinians will continue to fight Israel and will not "surrender to the pressure exerted by Israel and the United States of America," said .
"We are unified in the trenches of resistance," he said.
The Bush administration and Israel have in the past blamed such attacks on the longtime Palestinian leader, Yasser Arafat, especially those that came when prospects for peace seemed brighter.
Powell stopped short of faulting anybody except the groups that took credit for the killings. Arafat "is still the president of the Palestinian Authority. I recognize that," Powell said in a broadcast interview.
But, he said, "Yasser Arafat has to play a more positive role than he has played in last few days, more than that over the last couple of years."
Powell said he is certain Abbas would arrest perpetrators of the attack if he could find them.
"Now we have to give him the capacity and capability" to resist the anti-Israeli attackers. The United States is ready to provide him the help to do that, Powell said, and is asking others to do the same thing.
The leader of the National Security Council said the White House was not surprised at the new violence.
"We never expected that the rejectionists would find this a welcome development," said Condoleezza Rice, the president's national security adviser.
She said the international community needs to support Abbas in his efforts to try to reign in militants who want to scuttle the peace plan.
"There are going to be those who try and make this stillborn, but the parties need to stay on track," Rice said.
In a videotape sent to The Associated Press, the three attackers were shown wearing army uniforms and sitting in front of the three flags of their militant groups. Three copies of the Quran, two rifles and several hand grenades lay on a table in front of them.
The attack came hours after an armed Palestinian tried to attack a Jewish settlement in Gaza, according to Palestinian and military sources.
Israeli troops killed the man, who was armed with an assault rifle and a pouch of grenades, after he fired at them Saturday night from a house in the central Gaza Strip, military sources said.
In a statement faxed to The Associated Press, the radical Democratic Front for the Liberation of Palestine claimed responsibility for the attack and said the man had been trying to infiltrate a nearby Jewish settlement.
The three-stage peace plan was formally launched at last week's Mideast summit in Jordan, with Bush, Sharon and Abbas attending.
Success of the road map depends to a large extent Abbas' ability to rein in the militant groups. Abbas has said he will not use force against the armed groups for fear of civil war, and as recently as last week appeared confident he could negotiate a truce with them.
However, Hamas, the most deadly of the groups, on Friday walked away from truce talks, saying Abbas made too many concessions at the summit, where he condemned violence against Israelis and called for an end to the "armed intefadeh."
On Saturday, Hamas met with Islamic Jihad and other radical factions, and participants agreed they would not stop bombings and shootings. "All agree on our peoples rights to resist occupation," Rantisi said after the meeting.
Reflecting the continuing tension, Israel reimposed a closure on the West Bank, banning Palestinians from entering Israel, except for humanitarian cases. The military said the closure was in force as of midnight, "due to serious security alerts."
After Sunday's shooting, Gaza crossings into Israel were also closed. Israeli security sources said there have been dozens of warnings of planned terror attacks.
Sharon had eased a previous closure a week ago as a goodwill gesture to Abbas ahead of the summit.
Palestinian officials had said before Sunday's attack that the Hamas walkout may not be final and there's still a chance for a truce. Hamas, known for its pragmatism, would not risk a confrontation with security forces and would quickly resume talks, they said.
"The only way to resolve the issue ... is through dialogue and whoever leaves the negotiating table is the loser," Palestinian Information Minister Nabil Amr said Saturday.
The Palestinian parliament plans to hold a special session soon to hear a report from Abbas on the latest developments, Amr said.