At least 10 people have been injured in an explosion on a bus in Israel's commercial capital, Tel Aviv.
One Israeli official said the blast, near the military headquarters, was a "terrorist attack".
After the incident, huge blasts were heard in Gaza, in an apparent Israeli strike on the football stadium, while militants fired more rockets at Israel.
International efforts to broker a truce between Hamas and Israel after eight days of exchanges are continuing.
US Secretary of State Hillary Clinton and UN Secretary General Ban Ki-moon are in the region.
They held talks on the West Bank early on Wednesday and Mrs Clinton has now arrived in Cairo for talks with the Egyptian president.Celebratory gunfire
Israeli Prime Minister Benjamin Netanyahu's spokesman Ofir Gendelman said on his Twitter account that the explosion was caused by a bomb and that it was "terrorist attack".
Emergency services say three of the wounded in the bus explosion are in a serious condition.
The bus was reportedly passing the military headquarters in the city at the time of the blast.
Police believe a bomb was planted on the bus and they are still searching for a suspect.
Israel's Haaretz newspaper said the injured were being taken to Ichilov hospital.
Loudspeaker announcements in Gaza City said that Hamas, the militant Palestinian group that has run Gaza since 2007, had carried out the attack.
Hamas spokesman, Sami Abu Zuhri, told Reuters: "Hamas blesses the attack in Tel Aviv and sees it as a natural response to the Israeli massacres... in Gaza."
Celebratory gunfire reportedly rang out when local radio relayed news of the attack.
BBC correspondents then reported a series of massive explosions in Gaza, in an apparent Israeli strike on the sports stadium.
According to Israel's ministry of foreign affairs, the last bomb attack in Tel Aviv was in April 2006, when a suicide bombing on a restaurant killed 11.