Israeli Prime Minister Benjamin Netanyahu said on Sunday that Israel is ready to step up military action against Palestinian militants in the Gaza Strip.

"The Israel Defense Forces will continue to operate with resoluteness against terror groups in Gaza, and they're already sustaining harsh hits," Netanyahu told ministers at the start of Sunday's cabinet meeting.

"The world needs to understand that Israel will not sit idly in the face of attempts to harm us. We are prepared to intensify our response," he said.

The remarks came after three Israeli civilians lightly wounded early Sunday morning, when a dozen rockets fired from Gaza struck the southern city of Sderot and others bordering the coastal territory.

An estimated 60 rockets hit Israel over the course of Saturday and Sunday, forcing thousands of people to take cover in bomb shelters and schools were cancelled, local media reported.

The Israeli Air Force launched several retaliatory airstrikes overnight on Saturday, which killed five Palestinians and wounded 25 others, according to Palestinian sources.

"Aircraft targeted a weapon manufacturing facility, two storage facilities and two rocket launching sites in the northern Gaza Strip, as well as one weapon storage facility and one terror activity site in the southern Strip. Direct hits were confirmed," said a military statement sent to Xinhua.

Palestinian fatalities in the overnight strikes included one Islamic Jihad operative who was part of a rocket crew targeted by a missile in northern Gaza , the group said.

The latest round of tit-for-tat violence, among the worst in recent weeks, erupted Saturday evening when militants fired an anti-tank missile at an army jeep carrying out a routine patrol along the security barrier with central Gaza , wounding four soldiers.

Both Hamas and a faction affiliated with the Popular Front for the Liberation of Palestine claimed responsibility, with the former claiming the attack was in retaliation for the death of a Palestinian child from Israeli gunfire last week.

Top Israeli officials Sunday echoed Netanyahu's promise of a harsher response to the escalation.

Defense Minister Ehud Barak said Israel "must ensure freedom of operations" for the military, in comments to Army Radio.

Home Front Defense Minister Avi Dichter said Israel must restore its deterrence against Gaza, describing the situation as " unbearable and unreasonable."