At least three rockets fired from Lebanon exploded in northern Israel on Thursday, wounding two people, police and medics said, in an attack seen as linked to Israel's offensive against Hamas Islamists in the Gaza Strip.

Israel hit back with artillery shells in what a military spokesman called 'a pinpoint response at the source of fire'.

It was not immediately clear whether Lebanon's Hezbollah guerrillas -- against whom Israel fought a 2006 war -- or Palestinians fired the rockets.

Lebanese security sources said it seemed unlikely Hezbollah fired the salvoes. Hamas sources in Lebanon denied involvement.

Israeli forces have been on high alert in the north fearing that Hezbollah could fire rockets into northern Israel as it did in the 2006 conflict and lend support to Hamas and the Gaza Strip's 1.5 million inhabitants.

Israeli warplanes bombed targets across the Gaza Strip on Thursday and tanks advanced in the Hamas-ruled territory as US backing for a truce proposal raised expectations of an end to the onslaught that has killed more than 600 Palestinians.

Shi'ite Hezbollah has not opened fire since Israel started bombarding the Gaza enclave nearly two weeks ago to the south of Israel with the declared aim of halting Hamas rocket attacks.

Palestinian groups in Lebanon have also been known to fire rockets and Israeli military affairs commentators said it was more likely they were responsible for the rockets that hit the Israeli resort town of Nahariya and three other locations.

One rocket punched a hole in the roof of a building in Nahariya that Israeli media said was a home for the elderly and was being evacuated.

'I have decided on two steps -- to send schoolchildren home and that people should remain in shelters,' Nahariya Mayor Jackie Sabag said on Israel's Channel Two television.

The Magen David Adom ambulance service said two people in northern Israel were slightly wounded and several were treated for shock after what police said were at least three rocket strikes.

In the occupied West Bank, Israeli police shot and killed a Palestinian man who tried to set fire to a gas station at a Jewish settlement, police said.

Residents in Gaza described the overnight bombardment to the east of the city as among the heaviest in the offensive.  An Israeli air strike killed three gunmen of the Islamic Jihad group in northern Gaza, medics said. Tanks advanced closer to the southern town of Khan Younis, witnesses said.

Although Israel pressed on with the offensive, it said it accepted the 'principles' of a European-Egyptian ceasefire proposal. The United States urged Israel to study the plan.

The total of Palestinian deaths since Dec. 27 rose on Thursday to at least 661 -- the bloodiest episode in decades of Israel-Palestinian conflict. - Reuters