Palestinian militants fired more than 150 rockets from the Gaza Strip at neighboring Israeli towns overnight, triggering waves of Israeli airstrikes against Hamas military installations as the sides alternated between talk of a cease-fire and warnings of all-out war.

Hamas officials said three Gazans were killed in the Israeli strikes, whose targets included an underwater tunnel militants dug to infiltrate Israel, and a factory for making tunneling parts, according to the military. Israeli army spokesman Lt. Col. Jonathan Conricus said seven Israelis were injured in the Hamas shelling of Sderot, a town close to the border.

Additional rockets were downed by Israel’s Iron Dome missile interception system and the rest fell in open areas, the army said.

“Hamas is taking 2 million Palestinians hostage,” Israeli Housing Minister Yoav Gallant told reporters on a conference call Thursday. “Whatever is needed to do in order to defend our citizens and soldiers will be done, no matter what the price will be in Gaza.”

Heating Up

The conflict heated up Wednesday night after two Hamas operatives were killed by Israeli tank fire. Before the flareup, Hamas, which rules the 40-kilometer-long (25-mile) sliver of land, was examining a truce proposal sponsored by Egypt and the United Nations to curtail four months of border confrontations. The group is considered a terrorist organization by Israel, the U.S. and European Union.

Hamas warned the Israeli “aggression” could explode the situation, Al Jazeera reported. Israel’s Security Cabinet was to meet Thursday afternoon amid warnings that a larger operation in Gaza was under consideration.

Military spokesman Conricus said Israel had ground troops ready to be deployed and could evacuate communities near the Gaza border if necessary. On Wednesday, the army had closed roads near the Gaza border and put residents on alert after it saw Hamas fighters evacuating forward positions near the border, a step Hamas often takes before launching attacks likely to draw Israeli counterstrikes.

“There’s some irony in the disparity between reports of negotiations, the attempts to deescalate the situation, and then on the other hand seeing this Hamas behavior and its decision to target Israeli civilians, knowing that when they fire at our civilians we must respond,” Conricus said. “It’s counterproductive from a Gaza perspective, I think.”

(Adds comments from Israeli housing minister in fourth paragraph, military spokesman in last paragraph.)