The Israeli military says a rocket fired from Gaza made a direct hit on a home in southern Israel.
One Palestinian was killed after Israeli jets struck targets in the Gaza Strip early Wednesday following a rocket fired from thr enclave struck a house in the southern Israeli city of Beersheba.
The other rocket came down in the sea off Tel Aviv, 70 kilometres (45 miles) from Gaza, the army said.
Netanyahu said that in a statement that unless attacks from Gaza ceased, "Israel will act with great force" to stop them. "It's not hard to narrow down who's behind it". Gaza health officials said seven Palestinians were killed when Israeli troops opened fire on a group that broke through the fence.
Liberman told reporters that the Israeli cabinet has to decide if it will embark on a large-scale military operation against the Palestinian terror movements in Gaza in light of the wave of attacks against IDF soldiers and civilians in southern Israel. "We are not prepared to accept the level of violence we see week after week".
Hamas and Islamic Jihad denied responsibility for the rocket fire, issuing an official joint statement hours after the attack that said, "The Joint Operation Room of the Palestinian Factions lauds the efforts exerted by Egypt to serve the Palestinians their legitimate demands, and we reject any other attempt to undermine the Egyptian endeavors, including the launch of a rockets took place last night".
Defense Minister Avigdor Lieberman also announced the closure of both of Israel's border crossings with Gaza, the Kerem Shalom goods crossing and the Erez people crossings.
The head of Egyptian military intelligence, Abbas Kamel, is scheduled to visit Gaza this week to renew high-level cease-fire talks.
Growing voices within Israel's leadership have been calling for a stronger response to ongoing weekly protests along the Gaza border fence.
The rocket attack was the latest in escalating violence, which has seen Palestinian rioting along the Gaza border for almost seven months.
A Hamas soldier prays amid the rubble of a destroyed military base after Israeli airstrikes October 17 in the town of Rafah, in the southern Gaza Strip.
More than 2 million Palestinians are packed into the coastal enclave.
"What they're doing is sending Palestinian civilians forward, causing them to endanger themselves by attacking Israel and then hoping that these civilian casualties will generate or garner global interest in what's happening and perhaps alleviate the situation in Gaza", he added. Prime Minister Benjamin Netanyahu threatened "very painful blows", saying Israel was very close to waging a "different kind of activity".
Egypt, along with the United Nations, are now working to achieve inter-Palestinian reconciliation between Hamas and Fatah as well as a lasting ceasefire between Israel and Gaza militants.