At least six Palestinians have been killed and dozens wounded after Israeli troops, backed by tanks and helicopter gunships, seized control of a town in the Gaza Strip, in one of the military’s largest incursions in recent months.

The strike in the northern town of Beit Hanoun, in which an Israeli soldier was also killed, was condemned by Mahmoud Abbas, the Palestinian President, as well as the ruling party Hamas, which branded the raid a "massacre".

Soon after the strike, Hamas’s military wing called a press conference in the street, in which a masked spokesman flanked by armed guards warned Israel to forget about hopes for peace as long as hostile action continued.

The operation took place before dawn according to witnesses, with Israeli soldiers - backed by armoured vehicles - entering before fighting erupted, followed by air strikes and tank shelling.

Palestinian security sources said the clashes had killed a Palestinian policeman and two gunmen, including one from Hamas. The armed wing of the group later said that seven people had been killed - four from Hamas, two from other groups and one civilian – adding that its gunmen had killed the Israeli soldier.

At least 33 others were wounded, most of them gunmen, but also including a woman and an 11-year-old boy, hospital officials said. Dr Jamil Suleiman, director of the Beit Hanoun hospital, added that all of the facility’s blood supplies had been used up.

Palestinian gunmen later fired at least two homemade rockets into the Israeli border town of Sderot, lightly wounding one person, according to medical officials.

A correspondent for The Times at the scene said he saw smoke trails in the sky and Palestinian rockets streaking over from Gaza into southern Israel. He also heard heavy gunfire and saw youths scattering and running away from Beit Hanoun.

Residents said the army was operating deep inside the town in what they said was the biggest raid there since Israel’s withdrawal from the Gaza Strip last year.

The Israeli military confirmed there was "ground action" in northern Gaza, adding the air the strikes were aimed at gunmen and that the town had been a staging ground for launching rockets at Israel since the beginning of the year.

The action was denounced by Palestinian leaders, with both Mr Abbas and Ismail Haniya, Prime Minister of the Hamas-led government, unequivocal in their response.

Mr Abbas said that Israel was waging "all-out war", and called the operation "despicable", while Mr Haniya branded it a "massacre".

Meanwhile, the armed wing of Hamas called a dramatic and defiant press conference, warning Israel "as long as there is [Israeli] aggression they shouldn’t dream of having security."

Wearing a balaclava and surrounded by armed men, Abu Ubaida, a Hamas military spokesman, accused Israelis of continuing "crimes and massacres which are a sting in the face of humanity, destroying houses, uprooting trees and beating civilians.

"This has become their regular action with the backing of the head of terrorism in the world which is the US," he said.

Mr Haniya added that he hoped today’s move would not harm Egyptian-brokered talks aimed at achieving a swap of Palestinian prisoners in Israel for the release of a captive soldier, Gilad Shalit, who was kidnapped in June in a cross-border attack by Gaza militants.

Since the kidnap, Israel - which evacuated Gaza in September 2005 – has launched an offensive on the coastal strip to press for Mr Shalit’s release, resulting in clashes which have killed some 270 Palestinian and three Israeli soldiers.

A Hamas delegation has been holding negotiations with Egyptian officials in Cairo this week on a possible deal to negotiate Mr Shalit’s release.

In Jerusalem, the security Cabinet agreed to continue current Gaza operations and step up pressure on Hamas.

"The intention is to hit the rocket launch sites and terror infrastructure but not to use it as a means of reoccupying Gaza," the Deputy Defence Minister, Ephraim Sneh, told Israel Radio, according to Reuters.

Israel withdrew its army and Jewish settlers from Gaza last year after a 38-year occupation, but tension began rising along the frontier when Hamas took power after winning January elections. The movement formally seeks the destruction of the state of Israel.

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