Earlier on Wednesday, air raid sirens warning of incoming rocket fire sent Israeli residents of communities along the tense Gaza border scrambling for shelter before the Israel Defense Forces (IDF) determined them to have been a false alarm.
Gaza health ministry said two of the victims were a pregnant Palestinian woman and her 18-month-old child, another victim was a Palestinian man.
One Palestinian rocket hit a house, Israeli media said, showing footage of houses and cars pockmarked with shrapnel.
Israel's military later confirmed it struck Gaza, saying it hit 12 Hamas sites in all, including "an offensive maritime terror tunnel. several terror sites in military compounds throughout the Gaza Strip. rocket manufacturing facilities and a central logistical military complex".
"As of now, approximately 70 rocket launches were identified from the Gaza Strip at Israeli territory".
The Israeli press reported that nine Israelis had been injured.
The strikes came after at least two of dozens of rockets launched from the coastal enclave hit the Israeli town of Sderot, near Gaza's northern border, police and the army said.
Following the strike, Hamas' Izzedine Al-Qassam Brigades announced that two of its members were killed in the strike, naming them as Ahmad Margan and Abdel Hafex Al-Silawi, both 23-years-old and from the Jabalia refugee camp.
Israeli Prime Minister Benjamin Netanyahu convened an emergency meeting of the security cabinet due to the growing tensions in the Gaza Strip which was attended by Defense Minister Avigdor Liberman and senior commanders.
Syrian First Lady Asma al-Assad treated for breast cancer
The same photo was posted on Asma's Instagram account, prompting a flurry of good wishes from many of her 260,000 followers. Before the crisis began in March 2011, she was the subject of flattering profiles in Vogue and other fashion magazines.
A watchtower of the Qassam Brigades in Al Zaytun neighbourhood was targeted by the Israeli shelling. "I very much hope that we are on the brink of a new day on the matter of Gaza", he told reporters.
On Tuesday, the IDF admitted that earlier shootings from Hamas did not target Israeli soldiers which caused IDF to strike back, killing two Hamas militants, Israel's Channel 10 reported.
Parts of the town have been closed off and police bomb disposal units were at the scene of the strikes, a spokesman for the force said.
United Nations and Egyptian-led efforts are under way to mediate a long-term truce between Israel and Hamas that would end a four-month surge of violence along the Israel-Gaza border.
The nearly daily airborne arson attacks have been part of months of weekly border protests led by the Islamic militant group Hamas that rules Gaza aimed in part at drawing attention to the Israeli-Egyptian blockade imposed after it took control of the territory in 2007. Twenty-four of the slain protesters were minors, the ministry has said.
Around two million people live in Gaza, mainly stateless descendants of Palestinians who fled or were driven out of what is now Israel at its founding in 1948. One Israeli soldier was killed by a Gaza sniper during this period.
Israel says Hamas, which rules Gaza, is using the protests as cover to carry out cross-border attacks.
The Gaza Strip, home to almost two million Palestinians, has been reeling under a crippling Israeli blockade since 2007.