More than 77 rockets and mortar shells were fired at Israeli communities since Tuesday, 65 of them Wednesday morning, the army said. The Israeli air force retaliated with five airstrikes against rocket firing crews in Gaza.
Palestinian media reports said three Palestinians were killed in the strikes, all members of Hamas and the Popular Resistance Committee.
"We cannot be fired at and sit idly by. Gaza must decide whether it wants to develop or continue serving as a hub for terrorism and murder," Israeli President Shimon Peres said.
Defense Minister Ehud Barak told Army Radio Israel is determined to restore calm in the South.
The army's Home Front command instructed residents to remain inside fortified areas and schools were suspended in the Eshkol, Sha'ar Hanegev and Sdot Negev regional council areas. In other areas near the Gaza Strip, schools remained open since they are all fortified, Ynetnews reported.
Three foreign workers were injured, two seriously, and four homes suffered direct hits in the Ashkelon coastal region and the western Negev early Wednesday, Israel Radio said. Two of the workers were airlifted to the Soroka Medical Center in Beersheba. An Israeli woman suffered slight injuries when she fell as she ran to a bomb shelter, the report said.
The Iron Dome missile defense system intercepted seven rockets fired at the Ashkelon coastal region.