The ceasefire between Israel and Gaza-based Hamas militant group has been broken after less than four weeks.
Israel said on Wednesday that its aircraft struck Hamas military compounds in Gaza after incendiary balloons launched from Gaza caused twenty fires in fields in communities near the border.
The balloons were launched in response to a march which saw far-right Israeli protesters parade through predominantly-Arab East Jerusalem.
Hamas had warned that if the event went ahead, it would be seen as a provocation.
In a statement, the Israeli Defence Force said that it was “ready for all scenarios, including renewed fighting in the face of continued terrorist acts emanating from Gaza”.
A Hamas spokesman, who confirmed the Israeli attacks, said Palestinians would continue to pursue their “brave resistance and defend their rights and sacred sites” in Jerusalem.
The clashes broke a ceasefire which had come into effect last month, following eleven days of cross-border fighting which left at least 250 Palestinians and thirteen Israelis dead.
On Tuesday afternoon, mainly far-right Israeli protesters gathered around the Damascus Gate of Jerusalem’s Old City before heading to Judaism’s holy Western Wall, drawing Palestinian anger and condemnation.
Many of the protesters held blue-and-white Israeli flags as they danced and sang religious songs.
At one point, several dozen youths, jumping and waving their hands in the air, chanted: “Death to Arabs!” In another anti-Arab chant, they yelled: “May your village burn.”
Israeli Foreign Minister Yair Lapid condemned the march via Twitter, saying those shouting racist slogans were “a disgrace to the Israeli people”.