Palestinian militants in the Gaza Strip launched a rocket that landed in the Israeli border town of Sderot on Sunday and Israeli aircraft and tanks responded by shelling the Gaza town of Beit Hanoun, the army and police said.
The rocket caused no injuries or damage in Sderot, where it landed in a residential area, police said.
An Israeli shell during an initial retaliation damaged a Beit Hanoun water tower and there were no casualties, local residents said.
Multiple air strikes later in the evening hit at least 30 different sites in the Gaza Strip belonging to Hamas, the smaller Islamic Jihad and other militant groups and two people were lightly hurt, Gaza health officials said.
A music festival in Sderot attended by hundreds of Israelis was temporarily disrupted as people sought shelter, television footage showed.
The Israeli military said aircraft had attacked targets in the northern Gaza Strip and added that since the beginning of the year, 14 Gaza rockets had hit Israel.