The Israeli army, backed by tanks and helicopters, entered Gaza City early on Thursday in what Palestinian officials said was the deepest incursion for two years.

Witnesses said more than 50 Israeli vehicles entered the As-Sabra neighbourhood, to within 200 metres of the home to Sheikh Ahmed Yassin, founder and spiritual leader of the militant Islamic group Hamas.

Young children have recently become fatally involved in the conflict

Three Palestinians were wounded by gunfire, and several men were arrested, before the Israeli forces pulled back.

Hamas has carried out a series of suicide bombings during the two-year-old Palestinian uprising, and Israel has often wanted to rein in the Hamas militants.

Israeli soldiers stormed the house of Yosef Meqdiad, an official in the Palestinian security services, arresting him and three of his brothers, according to relatives.

Meanwhile, in continuing skirmishes between the two sides, a two-year-old Palestinian boy was killed and his mother injured after Israeli tanks opened fire on the Rafah refugee camp in the Gaza Strip on Wednesday.

The boy is the fourth child to die in the past five days in violence between Israelis and Palestinians.

The father of the dead Palestinian boy, Assad Masari, said he was killed by unprovoked Israeli gunfire.

But an Israeli military source insisted the troops were returning fire after being attacked by an anti-tank missile.

Contrasting accounts

Earlier in the day, Israeli forces took over the West Bank town of Nablus, arresting at least 30 Palestinians in retaliation for the killing of five Israelis in a kibbutz over the weekend.

The Israeli incursion into Nablus early on Wednesday morning was one of the largest in months, with Palestinian sources describing the arrival of dozens of tanks and armoured vehicles into the town.

In a statement, the Israel army said most of those arrested were from the Islamic group Hamas.

The operation started 24 hours after Israeli troops raided the nearby town of Tulkarm, arresting three men.

Israel security sources said they were hunting for the gunman who struck at the kibbutz, focusing their attention on a man identified as Sirhan Sirhan, a distant relative of the assassin of US Senator Robert Kennedy, who has the same name.

The wanted man is said to be a militant from Tulkarm, affiliated to Yasser Arafat's Fatah movement.

Wednesday's raid was focused on several militant strongholds - the Old City, An Najah University and two refugee camps on the outskirts of Nablus.

Exiling Arafat

The renewed violence is threatening to overshadow a new US diplomatic drive to gain acceptance for an international plan to revive peace talks between Israel and the Palestinians.

The BBC's Jeremy Cooke in Jerusalem says Prime Minister Ariel Sharon is under pressure from the Americans to keep things quiet while preparations for war against Iraq continue.

Netanyahu has to remember that I am Yasser Arafat and that this is my land and the land of my grand-grand-grand-grand-grandfathers

Yasser Arafat

But the prime minister also knows that domestic politics mean he must be seen to be taking strong action, our correspondent says.

He is facing a serious leadership challenge from current Foreign Minister Binyamin Netanyahu.

On Tuesday, Mr Netanyahu vowed to eject Mr Arafat from the Palestinian territories if he is elected prime minister - a challenge which he renewed again on Wednesday at a Security Cabinet meeting.

Mr Sharon ruled out the prospect on Wednesday, saying that Israel's security services "recommended not to do this now because the damage to Israel would be greater than the achievement."

Yasser Arafat, meanwhile, responded angrily to Mr Netanyahu.

"Netanyahu has to remember that I am Yasser Arafat and that this is my land and the land of my grand-grand-grand-grand-grandfathers," he said.