Updated

Israeli troops stormed a Hamas stronghold on Thursday, setting off the most intense gunbattle in the Gaza Strip in 2 years of fighting, just a day after mediators presented a Mideast peace plan. Twelve Palestinians were killed, including two children and a top bombmaker.

Also Thursday, a Palestinian opened fire on a guard post outside a Jewish settlement in the West Bank, and soldiers killed the attacker, the military said.

Palestinian officials and Israeli opposition leaders accused Prime Minister Ariel Sharon of using the raid to undercut the new Palestinian prime minister, Mahmoud Abbas, before he has a chance to fulfill a promise to disarm militias.

However, a Sharon adviser said Israel would not halt its anti-terror campaign and would not give Abbas, sworn in Wednesday, a grace period.

The Israeli incursion pitched more than 200 Palestinian gunmen with anti-tank missiles, grenades and homemade explosives against Israeli soldiers who fired machine guns and tank shells. Sixty-five Palestinians were wounded, including 15 critically.

The violence came just a day after international mediators presented a new peace plan, the so-called "road map" to Palestinian statehood within three years. The Palestinians have accepted the plan, while Israel has expressed major reservations.

The road map starts with a Palestinian crackdown on terror groups and an Israeli freeze on Jewish settlements in the West Bank and Gaza Strip, combined with a gradual Israeli pullout from the autonomous Palestinian zones its troops have reoccupied during 31 months of fighting.

In Madrid, Secretary of State Colin Powell urged both sides to take steps toward implementing the plan. "We need to see the end to terror -- and actions on the Israeli side as well," Powell said at the start of a trip through Europe and the Middle East. Powell was expected to meet with Sharon and Abbas next week.

The Gaza City incursion came a day after Hamas carried out a homicide bombing in a Tel Aviv pub that killed a waitress and two musicians. However, Israeli military officials did not link the raid to the bombing, saying they were after three top Hamas fugitives in Gaza -- brothers Yousef, Mahmoud and Ayman Abu Hein.

At about 2 a.m. Thursday, tanks and jeeps drove into Gaza City's Shijaiyah neighborhood. Troops surrounded a four-story apartment building that was home to 60 members of the Abu Hein family.

Dr. Fadel Abu Hein, a prominent child psychologist and a brother of the wanted men, said the apartment building came under intense fire.

"We are sitting in full darkness. Children are screaming. We are trying to calm them down, but bullets are coming from all directions," he said.

The Israeli commander of the operation, Brig. Gen. Gadi Shami, said the three wanted men tried to keep their relatives in the building as a buffer, and that soldiers broke in to rescue the civilians.

However, members of the Abu Hein clan said soldiers used several civilians, including women, as human shields in their search of the building.

Once only the three fugitives were left in the building, troops blew it up. Doctors said the three brothers were already dead by the time of the explosion, noting their bodies were riddled with bullets. Yousef Abu Hein was a top Hamas bombmaker who was imprisoned both by Israel and the Palestinian Authority.

The blast was so powerful that more than a dozen adjacent homes were damaged, some severely.

In addition to the Abu Hein brothers, five other gunmen were killed. The other dead were two adult civilians, including a mentally handicapped man, and two boys, ages 2 and 13.

The 2-year-old, Amer Ayad, was hit by a bullet to the head while he was near a window in his home, said his father, Ahmed Ayad. "Is this the new peace President Bush promised?" Ayad said. "They wrote the answer using the blood of my son."

An Associated Press reporter saw two boys, ages 12 and 14, hit by Israeli fire as they tried to run away from a burst of shooting. The 14-year-old was struck by a bullet in the neck, and doctors later said he was paralyzed from the neck down.

Eight Israeli soldiers were wounded, including one who was in serious condition, the military said.

Palestinian Cabinet Minister Ziad Abu Amr said the Gaza raid helped fan Palestinian resentment and contributed to a hostile climate that will make it difficult for Abbas to keep a promise to disarm militias and halt attacks on Israelis.

"They [the Israelis] should have left the Palestinians alone for a while, to let the prime minister handle things," said Abu Amr. "This man should be given a chance and he hasn't really been given a chance."

Danny Yatom, a leading legislator of Israel's opposition Labor Party and a former chief of the Mossad spy agency, also suggested the Gaza incursion was counterproductive. "It [the raid] definitely wasn't smart," he told Israel TV's Channel 10. "If we don't help the Palestinians, the road map will not get launched."

However, Zalman Shoval, a Sharon adviser, said Israel will not give Abbas, also known as Abu Mazen, a grace period. "We can't wait until Abu Mazen gets his act together," Shoval said. "The faster he moves to halt terror, the quicker Israel will be able to halt these operations."

Despite the new wave of violence, there was some hope the road map will succeed in ending the fighting where others have failed. The road map is supported by a rare global consensus that neither of the warring sides wants to rebuff. It comes at a time when U.S. clout in the Middle East is at a high point in the wake of Saddam Hussein's ouster in Iraq.