Israeli Foreign Minister Shimon Peres defended the latest Israeli raid against Palestinian targets.
"The root of the problem is terrorism, not our response," Peres said on a visit to a synagogue in western Moscow. "The policy of Israel is to try and stop terror and renew the political negotiations."
The violence came as a commission chaired by former U.S. Sen. George Mitchell formally released a report on the causes and possible solutions of Middle East bloodshed.
Secretary of State Colin Powell accepted the report, named a special U.S. envoy to the region and reiterated his call for an immediate cease-fire.
But on the ground in the Middle East, the fighting continued.
Monday's shelling began before daybreak when Israeli helicopter gunships rocketed the Jebalya refugee camp near Gaza City.
The shells badly damaged one building, knocking holes in the walls and shattering windows. Palestinians said it was a workshop for making spare car parts, while the army said it was a mortar factory.
The Israeli army said that 160 mortar shells have been fired from Gaza at Israeli targets in recent months, and that mortars were being made in several Gaza factories.
A factory for cement blocks and a book store were also damaged by the shelling. The Gaza security chief, Maj. Gen. Abdel Razek Majaida, accused Israel of hitting residential areas intentionally.
The street targeted by the shelling was littered with rubble and broken glass. About 100 Palestinians marched in the street, chanting, "Revenge, revenge" and "God is great."
On the outskirts of the Bureij refugee camp, near the border fence with Israel, two Palestinians were killed by Israeli fire. The army said soldiers fired at Palestinians who planted explosivs that were later discovered and detonated safely. Palestinian security officials said the two men were farmers on the way to their field.
Two Israeli tanks firing sporadically drove 800 yards into Karara village in Gaza and withdrew after about 20 minutes. Israeli tanks also fired machine guns at a neighborhood south of Gaza City, severely damaging several buildings, Palestinian officials said. Nearby, Israeli bulldozers razed several olive groves and farmlands on the outskirts of the Jewish settlement of Netzarim.
In several hours of Palestinian gunfire from the village of Beit Jalla at the Jewish neighborhood of Gilo in a disputed part of Jerusalem, five Israelis were wounded, two seriously. One man lost an eye, according to media reports, and another was shot in the chest, police said. Three children were injured by broken glass.
In the West Bank town of Hebron, a gun battle erupted between Israeli troops and Palestinian militiamen. One Palestinian was wounded.
Learn more about the history of the Arab-Israeli conflict.
Dozens of ultranationalist Jews marched in Arab East Jerusalem, carrying Israeli flags, calling Palestinian President Yasser Arafat a Nazi and yelling for Palestinians to get out of the city.
"Their hands are full of Israeli and Jewish blood, more than anyone after Hitler," Gershon Salomon, the head of the group, shouted through a bullhorn, referring to Arafat and Faisal Husseini, the Palestinian official for Jerusalem Affairs.
"Destroy them before they destroy us," he shouted outside Husseini's Orient House headquarters in East Jerusalem.
Also Monday, U.S. ambassador Martin Indyk criticized Israel's military moves, especially Sunday's tank shelling of the home of a top West Bank security chief, Jibril Rajoub, considered among the more moderate Palestinian figures.
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