The Palestinians reported that government offices have stopped providing services and that the Hamas government's security officers were evacuating their headquarters.
Following the incident, Defense Minister Ehud Barak met with senior defense establishment officials at his Tel Aviv office for an evaluation of the situation.
Barak said earlier, "This is a grave attack, we cannot accept it and we will respond."
Foreign Minister Tzipi Livni also said that Israel must retaliate. "As I said before the Gaza offensive, if we are attacked we must strike back... This is a test of actions, not just of rhetoric. Changing the equation has to do not only with what we've already done, but with what we will do next," she stated.
The incident occurred shortly after 8 am, as a routine IDF force patrolled the border fence in the southern Gaza Strip. The patrol included three vehicles in an area which has been the target of previous attacks due to the difficult ground conditions.
The vehicle hit was the first in the convoy and included four scouts, who were all hurt. A non-commissioned officer was killed, another officer was seriously injured and two other troops sustained light wounds.
Palestinian sources reported that exchanges of fire erupted in the area, including sniper fire.
Eyewitnesses said two or three gunmen were seen moving towards the border fence in the early morning hours.
Heavy gunfire was audible along the border in central Gaza and Israeli helicopters hovered in the air, firing bursts from their machine guns, the witnesses said. Two loud explosions were reportedly heard in Gaza City.
The attack has yet to be claimed by any Palestinian organization. A source in one of the groups told Ynet that Hamas or one of the organizations operating on its behalf were behind the incident.
The source estimated that Hamas was seeking to convey a message to the parties negotiating a ceasefire as part of the Cairo talks, stating that a truce agreement which would include the opening of the crossing must be obtained as soon as possible.