Residents streamed outside before dawn to inspect the damage, and rescue workers found the body of a militant killed in the fighting. Militants removed mines and explosives they had planted to try to stop the Israelis.
A rocket attack, meanwhile, wounded two Israeli children hit by shrapnel in the southern Israeli town of Sederot, Israeli rescue services said. The militant group Islamic Jihad said it launched the rocket.
Israel's army and air force have killed more than 100 Palestinians since it started attacking the Gaza Strip to stop militants from firing rockets at southern Israel.
Five Palestinians were killed Thursday, including a 75-year-old woman and a child.
The Gaza incursion began after Hamas-linked militants killed two soldiers and captured a third in a cross-border raid June 25.
Despite a high death toll in Gaza, with 23 people killed on Wednesday alone, the world's attention has been focused on Lebanon, where Israeli forces have been fighting Hezbollah guerrillas since July 12.
A Hamas political leader Usama Ali Mazini said the ruling militant group would not release the Israeli soldier, Cpl. Gilad Shalit, until Israel releases Palestinian prisoners first.
He added that Hamas expected to conduct negotiations for a prisoner swap side-by-side with Hezbollah, which seized two Israeli soldiers in its own cross-border raid.
In southern Gaza, Israeli aircraft hit a metal workshop in the city of Khan Younis early Friday, wounding nine people, including two children, hospital officials said. The military said the target was a weapons storehouse.
In the West Bank, meanwhile, the Israeli army arrested 22 Palestinians suspected of involvement in terrorist activity.
Near the city of Nablus, Israeli police also found a burned car Thursday with a charred body inside, police spokesman Micky Rosenfeld said. Israel Radio said the victim was an Israeli settler who was kidnapped and killed by Palestinians after going into the area to get his car fixed. Radio said the settler had stopped his car to pick up someone dressed as a religious Jew.
Also in the West Bank, a Palestinian youth was shot and killed Thursday by two Israeli border policemen after he attacked them on the outskirts of Jerusalem, police said.
The youth opened fire on the policemen, wounding one of them seriously and the other slightly before they returned fire, police and rescue workers said.
Palestinian President Mahmoud Abbas said in Algeria that the situation in the Palestinian areas and Lebanon was only likely to get worse after world leaders failed to agree on an immediate cease-fire at a summit in Rome on Wednesday.
"The situation will worsen and the consequences will be very heavy, not only for the region but probably for the entire world," he told Algeria's official APS news agency.