The air strike triggered threats of revenge by militants and made it harder for the beleaguered Abbas to rescue a fragile truce. In the past, armed groups have fired homemade rockets at Israeli border towns in response, drawing Israeli reprisals that have been particularly harsh since the Israeli pullout from Gaza in September.
Even as tensions rose in Gaza, Israeli and Palestinian negotiators were to meet Tuesday to try to resolve remaining disputes over new security arrangements on the Gaza-Egypt border.
But Israeli Prime Minister Ariel Sharon opened the winter parliament session by warning that the Palestinians must wage a real war on terrorism, and if they don't Israel will, reports CBS News correspondent Robert Berger. "Israel will continue to defend itself and hit the perpetrators of terror," Sharon said.
He reportedly also told the visiting Italian foreign minister that he won't meet with Abbas again as long as Palestinian attacks on Israelis continue.
Earlier Tuesday, Israeli Cabinet ministers approved the deployment of European inspectors at the border, a breakthrough after weeks of slow-moving talks and a major step toward giving the Palestinians freedom of movement without Israeli controls for the first time in four decades.
In other developments:
In Tuesday's airstrike, missiles slammed into a car carrying two top fugitives — Hassan Madhoun of the Al Aqsa Martyrs' Brigades and Fawzi Abu Kara of Hamas. The car was driving on a main north-south road next to the Jebaliya refugee camp when it was hit, and was turned into a twisted ball of metal scraps.
Just minutes earlier, Abbas' convoy had traveled on the road on his way to Gaza City, Abbas' bodyguards said.
Madhoun was involved in rocket attacks on Israel, serving as a coordinator with other militant groups, including Hamas and Islamic Jihad, Israeli officials said. Madhoun also helped plan three bombing attacks that killed 20 Israelis since 2004, including a blast in Israel's Ashdod port, the army said.
Military officials said the main target of the attack was Madhoun.
Hamas and Al Aqsa, a violent offshoot of Abbas' ruling Fatah movement, threatened revenge. "This is an open war," said Hamas spokesman Mushir al-Masri. "They (the Israelis) are going to pay a heavy price for their crimes."
The airstrikes came on the eve of Eid al-Fitr, a major Muslim holiday marking the end of the fasting month of Ramadan. It was not clear whether the proximity of the holiday would temper the militants' response, amid concern the Palestinian public would blame them, at least in part, for ruining the celebrations by inviting Israeli retaliation.
Hamas and Al Aqsa did not say an informal 9-month-old truce was off, but have insisted on the right to respond to Israeli strikes, a position Abbas has dismissed as unacceptable. Since the truce deal, Hamas and Al Aqsa have refrained from carrying out attacks in Israel, while Islamic Jihad has been responsible for four suicide attacks.
International mediators, meanwhile, tried to wrap up a deal on reopening the Rafah terminal on the Gaza-Egypt border, the Gazans' gate to the world. Israel closed Rafah before withdrawing, and Abbas agreed he would only reopen the border with Israeli agreement.
Israel's Security Cabinet agreed Tuesday to deploy European inspectors to replace Israeli border personnel, who had controlled Palestinian movement in and out of Gaza since capturing the territory in the 1967 Mideast war. However, Israel and the Palestinians disagree over how much authority the inspectors should have — the Palestinians consider them to be advisers, while Israel wants them to be in charge.
Only Palestinians and foreigners with special status — VIPs, business people, aid workers — will be allowed to pass through Rafah for in the short term.
Israel wants to be able to monitor Rafah traffic via closed-circuit television, a demand the Palestinians reject.
"The third party is there for a reason, to monitor that we carry out our obligations," said Palestinian negotiator Saeb Erekat. "The Israelis have left ... There should be no camera linkage to Israel."
Israel, meanwhile, would operate an alternate crossing, Kerem Shalom, several miles away at the junction point between Egypt, Gaza and Israel. The crossing would handle goods and foreign tourists entering Gaza.
Palestinians say outgoing goods should move through Rafah, not Kerem Shalom — another point of dispute. Israel insists that all goods go through Kerem Shalom.
A reopening of the border could give Abbas a badly needed boost as he heads into Jan. 25 parliament elections. Hamas is expected to pose a strong challenge, and until now, Gazans have seen few real benefits from the Israeli departure.