Egypt was desperately trying to salvage ceasefire efforts last night after Palestinian militants renewed rocket fire and Israeli air raids left a child dead.
Israel recalled its delegation from peace talks in Cairo in response to the firing of rockets across southern Israel.
Israeli air strikes across Gaza killed a two-year-old child and injured another in Rafah. Within a couple of hours, militants fired more projectiles and Israel stepped up its air strikes, leaving a question mark over Egyptian mediation efforts.
Mark Regev, spokesman for Israeli prime minister Binyamin Netanyahu, described the militant rocket fire at Beersheba, the largest city in southern Israel, as a "grave and direct violation of the ceasefire".
Mr Netanyahu ordered the Israeli delegation to return home immediately in accordance with Israel’s policy of refusing to negotiate “under fire”.
Hamas spokesman Sami Abu Zuhri said he had no knowledge of rocket fire from Gaza and blamed Israel for the escalation. “The attacks intended to topple the negotiations in Cairo [and] Israel is responsible,” he said.
There was no claim of responsibility for the firing at Beersheba, which came eight hours ahead of the latest midnight deadline for the Cairo talks, which had been extended for an extra day on Monday night.
During the talks Hamas spokesman Fawzi Barhoum had hinted of more rocket fire if there was no breakthrough to end the siege on Gaza. "If Netanyahu doesn't understand the language of politics in Cairo, we know how to make him understand, " he said.
After more than a month of intense conflict, which killed 2,018 Palestinians, many of them civilians, as well as 64 soldiers and three civilians in Israel, there is little appetite on either side for resumed violence.
However, Israel warned that it will respond forcefully to every single rocket attack and that it will consider ordering ground troops back into Gaza to prevent a war of attrition.
Thousands of Palestinians fled their homes in neighbourhoods of eastern Gaza City last night, carrying bags of clothes, pillows and mattresses and headed towards shelters in United Nations compounds.
It had not been clear ahead of last night’s renewal of hostilities if the indirect talks in Cairo would achieve a breakthrough ahead of the midnight deadline.
The fact that Egypt had ordered a further extension of the negotiations on Monday led to speculation that the sides might be close to a limited agreement, based on a partial opening of the Gaza border crossings and an expansion of the fishing zone off the Gaza coast in return for a militant commitment to stop rocket fire.
However, significant differences of opinion between Hamas and Palestinian Authority representatives compounded the difficulties in reaching an agreement.
