Social media images showed cars on fire and damaged buildings, and the Israeli ambulance service reported one woman had been killed and at least 15 others wounded.
Phone footage also showed Hamas fighters attempting to reach Israel on small boats, and in a highly unusual development, a number of fighters appeared to have crossed the border using paragliders, reaching the town of Sderot where gun battles were heard.
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0:31
Israeli tank set on fire
Footage from security cameras showed them entering the city in pick-up trucks and motorbikes.
Air raid sirens sounded across southern and central Israel, and there were explosions in the cities of Tel Aviv, Ashkelon, Yavne and Kfar Aviv.
A rescue agency said a 70-year-old woman had been critically injured when a rocket hit a building in southern Israel.
Israel said it was attacking targets in the Gaza Strip and the Israel Defense Forces (IDF) warned “the Hamas terror group will pay a very heavy price”.
The Israeli military said “a number of terrorists have infiltrated into Israeli territory” and residents along the border were told to stay indoors.
“The military declares a state of war alert,” it said in a statement.
Israeli defence minister Yoav Gallant said Hamas had “made a grave mistake this morning and launched a war against the State of Israel”.
He added: “IDF troops are fighting against the enemy at every location. I call on all of Israel’s citizens to follow security instructions. The State of Israel will win this war.”
Prime Minister Benjamin Netanyahu is understood to have convened an emergency meeting of his security cabinet.
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4:19
What’s happening in Israel?
A military spokesperson for Israel said Hamas fired 2,500 rockets in Saturday’s attack, while the group’s military commander Mohammad Deif said 5,000 rockets had been launched.
“This is the day of the greatest battle to end the last occupation on earth,” Mr Deif said on Hamas radio.
He said the attack was the beginning of “Operation Al Aqsa Storm” and was in response to Israeli violence in the West Bank, Gaza, and around Al Aqsa mosque compound in Jerusalem.
“Today the people are regaining their revolution,” he said in the recorded message.
“We must set the earth on fire under the feet of the occupiers,” the militant added.
Palestinian Islamic Jihad militant group said it had joined the attack, while Hamas also called on armed groups in Lebanon to get involved.
The attacks come after weeks of heightened tensions along Israel’s volatile border with Gaza, and heavy fighting in the Israeli-occupied West Bank.
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