JERUSALEM: Israel warned the Palestinian Islamist movement Hamas on Sunday it will pay a "heavy price" for the latest barrage of rocket attacks into the Jewish state and that the conflict could escalate.

"Hamas is responsible for the rocket fire and all other attempts to harm our soldiers and civilians, even when other groups participate. And it is Hamas that will pay the heavy price," Defence Minister Ehud Barak said.

The flare-up, which began Saturday, as well as tough statements from Israeli officials, raised the spectre of a broader Israeli operation against Gaza, along the lines of its devastating Operation Cast Lead over the New Year of 2009.

"During the last two days, the IDF (Israel Defence Force), upon my instruction, has been evaluating the host of options for harsher responses against Hamas and the other terror organisations in Gaza," Barak said.

"We will strike with an ever-growing intensity," he added.

In December 2008, just six weeks before general elections, Israel launched a huge operation in Gaza against rocket fire. The 22-day war killed 1,400 Palestinians -- half of them civilians -- and 13 Israelis, 10 of them soldiers.

The latest violence comes ahead of Israeli elections in January.

Prime Minister Benjamin Netanyahu warned earlier that Israel is "prepared to escalate" its response to Palestinian rocket fire.

"The army is acting and will act forcefully against the terror organisations in the Gaza Strip. They are receiving strong blows from the army," Netanyahu told a meeting of his cabinet.

"The world must realise that Israel won't sit by idly in the face of attempts to attack us. We are prepared to escalate our actions," he said.

The flare-up erupted on Saturday evening when Gaza militants fired an anti-tank missile at an Israeli jeep along the Gaza border, injuring four soldiers, one of them severely. Three remained in hospital on Sunday.

Israel retaliated with air strikes, shelling and artillery fire that killed six Palestinians and wounded 35 by Sunday night.

Palestinian militants fired at least 85 rockets into southern Israel, leaving four injured in the Israeli border town of Sderot. Two rockets were intercepted by Israel's missile defence system Iron Dome.

"It's a very severe situation, rockets are landing on our towns and villages, almost on a daily basis and of course no democratic country can tolerate such a thing," said Finance Minister Yuval Steinitz, a Netanyahu confidant.

US ambassador Dan Shapiro, writing on Facebook, said American "thoughts are with the residents of southern Israel, who continue to be bombarded with missile attacks from terrorist organizations in Gaza."

"The United States supports Israel's right to defend itself and its citizens from these attacks," he said.

Groups vow revenge

On Sunday, Palestinian medics said the death toll stood at six, after an Islamic Jihad militant named as Mohammed Shwikani, 20, was killed in an air strike near the northern Gaza town of Jabaliya.

Medics also reported finding the body of a second Jihad member, Mohammed Abed, 20, who was killed in another air raid east of Jabaliya.

The Israeli military said it had attacked seven targets on Saturday night, including arms dumps, a weapons-making facility and two rocket-launching sites "in response to recent events."

Medics said 35 people were wounded, with Ashraf al-Qudra, spokesman for the Hamas-run health ministry, adding that 10 had undergone amputations.

He named the four civilians killed as 20-year-old Matar Abul Ata, 17-year-old Mohammed Harara, 15-year-old Ahmed Harara and 18-year-old Ahmed Dardasawy.

The violence prompted authorities on both sides of the border to close some schools, and in Gaza the Hamas government and militant groups vowed revenge.

"The occupation attacked Palestinian civilians east of Gaza City and Khan Yunis. We consider this escalation as very dangerous. It must stop immediately," said Hamas spokesman Fawzi Barhum.

The radical Popular Resistance Committees vowed "the Zionist enemy will pay a high price for this crime against Gaza." And Islamic Jihad warned that "every aggression against the Palestinian people will be followed by a response."

Tensions have been rising on the border since Thursday, when an Israeli soldier was wounded after explosives packed into a border tunnel were detonated in an attack claimed by Hamas's armed wing.

Hours earlier, a 13-year-old Palestinian was shot dead by gunfire from an Israeli helicopter in the same area.