Hamas, which seized control of Gaza in a Palestinian civil war in June, has banned gatherings by the rival and more moderate Fatah. But Fatah defied the ban, prompting Hamas to launch a new crackdown early Tuesday. Dozens of Fatah activists were arrested.
The fighting stretched into a second day, leaving a total of eight dead and 60 wounded, despite an unusually conciliatory speech toward Hamas by Fatah's leader, President Mahmoud Abbas.
Continued clashes could undermine next week's scheduled visit to the region by U.S. President George W. Bush, who will try to prod Israel and the Palestinians closer to peace.
Five Palestinians died in fighting across Gaza on Monday, and a sixth died of his wounds Tuesday morning, medical officials said. Two others were killed in Gaza City early Tuesday in a gunbattle between Hamas security men and a family affiliated with Fatah, leaving one Hamas policeman and a Fatah supporter dead.
The eight dead included three Hamas and three Fatah supporters, officials said. Also killed were an elderly man caught in a crossfire in northern Gaza and a 14-year-old Hamas supporter shot in the southern town of Khan Younis after he exited a mosque, relatives said.
The deaths were the first in Palestinian infighting since Hamas forces opened fire on a huge Fatah rally on Nov. 11, killing eight and wounding 85. That gathering was the first sign of Fatah resurgence since the Hamas takeover.
Fatah said dozens of activists were arrested overnight Tuesday, and one of its leaders in Gaza City was briefly detained by Hamas forces who shaved off half his hair and mustache as humiliation. Hamas denied the charge.
Islam Shahwan, a spokesman for Hamas security forces, confirmed only that his men made a number of arrests. Hamas officials said all Fatah celebrations, including small gatherings, would be banned Tuesday, the actual anniversary of Fatah's founding.
Mahmoud Zahar, a senior Hamas official in Gaza, said the Gaza government "will pursue the killers and bring them to justice and punish them according to the law. We are not going to show mercy for these crimes."
After the Gaza takeover, Abbas expelled Hamas from government and installed his own pro-Western administration based in the West Bank.
In late November, he and Israeli Prime Minister Ehud Olmert relaunched peace talks in Annapolis, Maryland, and set a 2008 target for a peace treaty. Bush's visit next week is meant to bolster the fledgling peace process.
The Palestinians hope to build an independent state in the West Bank, Gaza Strip and east Jerusalem - areas captured by Israel in the 1967 Mideast war.
Olmert has signaled readiness to withdraw from a large chunk of the West Bank and part of east Jerusalem - prompting harsh criticism from within his ruling coalition. Israel withdrew from Gaza in 2005.
In a published interview Tuesday, Olmert said Israelis must understand that even their country's closest international allies want Israel to pull back in the West Bank and share Jerusalem.
"The world that is friendly to Israel ... speaks of Israel in terms of the '67 borders. It speaks of the division of Jerusalem," Olmert told The Jerusalem Post, an English-language daily.
"This marks a sea change in Israeli policy," says CBS News' Berger. "Since the 1967 war, Israeli leaders have said that Jerusalem would remain the undivided capital of Israel forever. But those days are over."
But Olmert said Israel would be able to hold on to some areas in the West Bank in any peace deal, with U.S. approval.
Although Israel has promised to halt building in its West Bank settlements, Olmert said that didn't apply to all settlements. He called Maaleh Adumim, a large settlement outside Jerusalem, an "indivisible part of Jerusalem and the state of Israel."
Palestinians reject any settlement construction, saying it compromises peace negotiations. They also want Israel to halt all construction in east Jerusalem.
Among the other sticking points for a final deal is Abbas' lack of control in Gaza. Hamas is committed to Israel's destruction and opposes the peace process.
In a Fatah anniversary speech Monday that lasted almost an hour and a half, Abbas offered to talk to Hamas.
"There is no way for any party here to be an alternative to the other, and there is no room for terms like coup or military takeover, but only for dialogue, dialogue, dialogue," he said.
Abbas called for "a new page, writing in its lines a credible agreement based on partnership, on life, on our homeland and our struggle to liberate it."
Abbas maintained his position that Hamas must restore power in Gaza to an elected government. But he urged reconciliation and called for new elections.
Zahar said Abbas' speech was "full of incitement that paved the road for some to carry out last night's massacre."
Hamas won January 2006 parliamentary elections and has rejected calls for another vote.