About 30 Qassam rockets were fired early Saturday from the Gaza Strip into Israeli territory.
One rocket landed in the Shaar Hanegev area, moderately injuring one person and lightly wounding two others.
They were evacuated to Ashkelon's Barzilai Hospital for medical assistance.
About 26 rockets were fired at Sderot, two over Nahal Oz, one over Kibbutz Raim and another at the Kissufim crossing, where damage was caused to property.
Four Sderot residents were treated for shock and damage was caused to a number of structures in the southern town.
At present, police have been able to locate nine of the rockets and are currently searching the area for the rest.
First air strike since pullout
The air force launched an air strike in response, firing missiles at Hamas structures in the Gaza Strip.
According to the IDF, the structures served as factories and warehouses for weaponry production. No injuries were reported in the attack.
This retaliation marks the first time Israel has carried out an air strike, since withdrawing from the area as part of the disengagement plan.
"The IDF will continue its firm action to protect Israel's residents," an army statement said. "The IDF believes the Palestinian Authority's security establishment is responsible to stopping and preventing terror activity aimed at Israel, from the Gaza Strip."
Increased police presence in Sderot
Meanwhile, Spokesman for Sderot City Hall Yossi Cohen said "the continuous Qassam shelling" began close to midnight.
"There has never been an attack like this before in such a short time. There were incidences like this over a day or two, but never for a continuous three hours."
Defense Minister Shaul Mofaz is set to hold a meeting Saturday with senior defense establishment officials at his Tel Aviv office, in order to evaluate the situation.
Following the attack, Mofaz ordered the IDF during the night to carry out a series of immediate steps.
Furthermore, the Southern District police convened a meeting during the night, where it was decided to increase police presence in Sderot and the surrounding area.
19 Palestinians killed during Hamas rally
At least 19 Palestinians were killed and some 80 more were injured Friday from an explosion that occurred during a Hamas rally
at the Jabalya refugee camp in north Gaza.
Hamas Representative in Lebanon Osama Hamdan said that according to information gathered by the organization the explosion in Gaza resulted from IDF helicopter fire that was aimed at Ahmed Randur, commander of the Izz el-Din al-Qassam Brigades in north Gaza.
However, the Palestinian Interior and National Security Ministry said that according to eyewitness accounts the blast occurred inside a vehicle carrying Qassam rockets and was not the result of IDF fire.
The army denied any involvement in the incident.
- Efrat Weiss, Ali Waked and Roee Nahmias contributed to the report