Israel has launched air strikes against militant targets in the Gaza Strip, after rockets were fired from the territory towards Jerusalem.
The Hamas-run Palestinian health ministry in Gaza said 20 people, including children, had died in the strikes.
In Jerusalem, the rocket fire caused Israel’s parliament to be evacuated as sirens sounded.
Tensions between Israel and the Palestinians spiralled in recent days.
Gaza’s Hamas rulers had threatened to strike after hundreds of Palestinians were injured in clashes with Israeli police in Jerusalem on Monday.
Israel said it had killed at least three Hamas militants. “We have started, and I repeat started, to attack military targets in Gaza,” Israeli military spokesman Lt Col Jonathan Conricus told reporters.
Hamas sources told the BBC a commander of the Izzedine al-Qassam Brigades, Mohammed Abdullah Fayyad, had been killed.
Israel’s Prime Minister, Benjamin Netanyahu, said Hamas had “crossed a red line” and that the “current conflict may continue for some time”.
“Israel will respond with great force… those who attack us will pay a heavy price,” he said.
The past few days have seen the worst violence in Jerusalem for years, with more than 300 Palestinians wounded in confrontations with Israeli police outside the al-Aqsa mosque on Monday.
A planned march by Israeli nationalists which was due to pass through Muslim areas of East Jerusalem’s Old City was called off over fears it could stoke unrest.
The Jerusalem Day event marks Israel’s capture of East Jerusalem – home to the Old City and its holy sites – in 1967, and usually sees hundreds of flag-waving Israeli youth make their way through the Muslim Quarter via Damascus Gate, chanting and singing patriotic songs.
It is regarded by many Palestinians as a deliberate provocation. This year’s march would also have taken place in the final days of the Islamic holy month of Ramadan.
The latest violence follows days of clashes between Palestinians and Israeli police in the nearby Sheikh Jarrah district of East Jerusalem, with the possible eviction of Palestinian families from their homes there by Jewish settlers a focal point for Palestinian anger.
Israel’s Supreme Court had been due to hold a hearing in the long-running case on Monday, but the session was postponed because of the trouble.
Fears had mounted that it would be a tense day in Jerusalem and so it turned out. The confrontation started first thing in the morning.
As I passed the Old City walls beneath the glittering Dome of the Rock, heavily armed Israeli police had entered the compound and were firing volleys of stun grenades at Palestinians who were throwing stones and other objects at them. Ambulances screamed past ready to ferry away the wounded.
The site holy to Muslims and Jews lies at the core of the region’s conflict.
Hundreds of Jewish activists had planned to go there in the morning, but were ultimately stopped by police. Muslim worshippers had stayed in al-Aqsa all night – ready, they said, to defend their mosque.
The city’s surging tensions stem from several causes. Among them, the threatened eviction of several Palestinians families from their homes in East Jerusalem by Jewish settlers.
That case is now on hold for several weeks after Israel’s government intervened. But despite the growing international calls for calm, today has seen more fuel poured on an already volatile mix.
Israel’s police force said thousands of Palestinians had barricaded themselves in the building overnight with stones and Molotov cocktails in anticipation of a confrontation during the Jerusalem Day Flag March, which was scheduled to start at about 16:00 (13:00 GMT).
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