The Israeli army moved into Gaza City early Tuesday, killing a local Hamas leader and an elderly woman in a gunbattle that erupted after troops tried to arrest the commander, the Islamic group and the military said.

Palestinian militants fired at least two rockets at the Israeli town of Sderot, critically wounding one person, Israeli rescue services said. One rocket landed about a half-mile from a convoy carrying the U.N. High Commissioner for Human Rights, Louise Arbour, who was touring the town.

Taking up sniper positions on rooftops in Gaza City's Zeitoun neighborhood, troops moved on the home of Wael Hassanin, the local commander in the ruling Palestinian group, witnesses said.

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Hamas gunmen flocked to the area as troops called on loudspeakers for Hassanin and his brother, Ibrahim, to surrender, said the militants' mother, who identified herself only as Umm Mahmoud. Shooting broke out between the gunmen and the Israeli forces, who were backed by dozens of tanks and armored vehicles.

Wael Hassanin, 26, was killed in the fighting, Hamas said in a statement. His brother was arrested, their mother said. A 70-year-old woman was also killed in the battle, Palestinian medical officials said.

The military operation, which began at about 2 a.m., was part of the latest Israeli attempt to halt Palestinian rocket fire from Gaza. In the hours before the offensive, Gaza militants fired at least 25 homemade rockets into Israel, the groups said in statements. An Israeli woman was killed in one rocket strike last week.

After dawn Tuesday, Israeli troops spread out into a second area of Gaza City, taking up positions east of the Jabaliya neighborhood, an area militants often use to fire rockets.

Israeli bulldozers plowed through farms, ripping up irrigation systems and destroying greenhouses and fields, Palestinian security officials said. A transformer that provides about 60 percent of the power to the Zeitoun neighborhood was destroyed.

The army confirmed that there was an ongoing operation in the city, but declined to provide further details.

The Israeli army has increased its military pressure on Gaza in recent weeks, launching a largely ineffective operation in the northern town of Beit Hanoun earlier this month. The air force has been targeting militants and areas where arms are believed stored.

After nightfall Monday, two Hamas militants were killed in an Israeli airstrike on a car in Gaza City, Hamas officials said. The Israeli military said it targeted a car carrying "terrorist activists."

After the airstrike, Palestinians streamed to a house in Gaza City, saying the owner, a Hamas activist, had received a warning from Israel that the house was to be targeted. Such demonstrations foiled three previous Israeli attacks on houses in recent days.

The violence in Gaza has been accompanied in recent months by increasing poverty brought on by international sanctions slapped on the Hamas-led government that took power in March.

The United States, Europe and other Western countries cut off aid to the Palestinian Authority, demanding the Islamic group recognize Israel, accept existing peace deals and renounce violence. Hamas has rejected the conditions.

Palestinian President Mahmoud Abbas, the Fatah Party head who was elected separately, had hoped to convince Western countries to lift the boycott by establishing a government of experts to replace the Hamas-led body. But on Monday Fatah officials suddenly announced that months of negotiations had broken down without agreement on the key issues.

It wasn't clear whether the suspension was the sign of a real crisis or simply a negotiating tactic by Abbas' weakened Fatah Party.

Hamas officials denied any serious trouble and late Monday Abbas again held talks in Gaza with Haniyeh, in a meeting described by officials as cordial.

In Damascus, Hamas political leader Khaled Mashaal held talks with Abbas envoy Ahmed Qureia, but the meeting focused on proposals for bringing Hamas into the PLO, a separate issue that has long been under discussion without progress.