At least 10 people were wounded by a blast that ripped through an explosives-laden tunnel near an Israeli military checkpoint on the Gaza-Egypt border, near the town of Rafah.
Palestinians witnesses said they heard a loud explosion, followed by machine-gun fire. They said Israeli vehicles rushed to the scene.
The Palestinian militant group Hamas and a group calling itself the Fatah Hawks claimed responsibility. A Hamas official said 1.5 tons of explosives were set off in the blast.
The Israeli newspaper Haaretz quoted a Palestinian militant who gave his name as Abu Majid as saying the explosion in the 250-meter-long tunnel was retaliation for what he called "the assassination" of Yasser Arafat, who died on November 11.
On Saturday, the Palestinian envoy to the United Nations, Nasser al-Kidwa, nephew of Yasser Arafat, refused to rule out that the Palestinian leader was poisoned by Israel, despite a statement from the French hospital, where he was treated until his death, that there was no evidence of poisoning.
Earlier Sunday, five Palestinian schoolchildren were reported wounded by Israeli tank fire in Khan Yunis in the Gaza Strip, after nearby settlements came under Palestinian mortar and rocket fire.
Palestinian security and hospital officials said Israeli tanks fired three shells in the Khan Yunis refugee camp in the southern Gaza Strip. The Israeli military had no immediate comment.
A settlement in the Gush Katif settlement block in southern Gaza was also hit by a mortar shell. There were no casualties in that attack.