By Nidal al-Mughrabi
GAZA (Reuters) - Israeli air strikes in the Gaza Strip killed two militants from the Islamist group Hamas and three Palestinian civilians Friday in a second day of increased cross-border violence.
The Israeli military said it "identified two terrorist squads from Hamas" and hit the militants from the ground and air.
An elderly Palestinian and two women died when their house in Khan Younis was hit and three other women were wounded, hospital sources said.
An Israel Defense Forces (IDF) statement said "uninvolved civilians have apparently been injured" in one strike.
"The IDF regrets that the Hamas terrorist organization chooses to operate from within its civilian population, using it as a 'human shield'," the statement said.
At least 15 rockets have been fired into Israel since dawn, causing damage but no injuries, said a police spokesman. Police were restricting traffic near the border area and there appeared to be no early end in sight to operations.
"We are in the middle of an event," General Tal Russo, head of Israel forces Southern Command, told reporters. "We are considering all actions, and we are in the midst of it."
Hamas had been hit hard, he said, but it was not over yet.
"We are considering everything. We are looking short-term, long-term. There are many tools in the box."
Two years of low-level skirmishing on the border escalated suddenly last month when the Islamist Hamas group which rules Gaza fired a barrage of rockets at Israel, triggering a surge of fighting which killed 16 Palestinians.
Analysts in Gaza said Hamas wanted to bolster its claim to leadership of the divided Palestinian national movement and divert attention from popular demands -- fueled by the "Arab Spring" -- for an end to the split with its Fatah rivals.
That spurt of violence subsided, but fighting flared again Thursday when Hamas gunmen fired an anti-tank missile at an Israeli school bus, wounding two. Israel retaliated with planes and armored forces, killing five Palestinians.
An Israeli analyst said Hamas was plainly smarting from recent setbacks, including an April 2 Israel airstrike that killed three Gazans.
But firing a long-range anti-tank weapon at a clearly marked yellow school bus may have been a further miscalculation.
"Red lines were crossed," General Russo said.
The United Nations and European Union Friday voiced concern over the rising tensions and called on the sides to show restraint and bring an end to the latest round of fighting.
NO "CALM" YET
Minister of Home Front Defense Matan Vilnai said Israel was locked in a "war of attrition" with Hamas.
"We are taking the proper steps, defensively and offensively. Yesterday, without a doubt, there was a serious deviation with the missile fire on the bus," Vilnai told Army Radio.
Gaza militants Thursday fired 45 rockets and mortars into Israel. Israeli forces struck targets throughout the densely populated territory, including Hamas positions, smuggling tunnels along the border with Egypt and Gaza's derelict airport.
Five Palestinians were killed and 30 others were injured.
Hamas has again said it was interested in restoring "calm" to the front and was trying to get smaller militant groups to halt attacks. Israeli Prime Minister Benjamin Netanyahu said Israel would take all necessary action to protect its citizens, but that he hoped the "situation will be contained."
During Thursday's barrage, Israel used for the first time its short-range Iron Dome interceptor. Its missiles destroyed in mid-flight a rocket heading for the city of Ashkelon.
Vilnai said Israel will consider deploying further Iron Dome systems near Gaza to join the two that are currently stationed there, but hinted at budgetary restraints.
Hamas, which does not recognize Israel's right to exist, seized control of the Gaza Strip in 2007 from forces loyal to Western-backed Palestinian President Mahmoud Abbas. The two wings of the Palestinian national movement remain enemies.
(Reporting by Nidal al-Mughrabi and Ari Rabinovitch; Writing by Douglas Hamilton; Editing by Jon Hemming)