An Israeli army post on the Gaza-Egypt border was blown up on Sunday, killing at least four Israeli troops in the deadliest attack since Yasser Arafat's death a month ago kindled new hopes of peace. The violence sent a message of militant muscle to both Israel and moderate Palestinian leader Mahmud Abbas, who became the only serious candidate for a January 9 election to succeed Arafat after jailed uprising leader Marwan Barghouthi withdrew.
The Israeli army's costliest day in seven months could also complicate Israeli Prime Minister Ariel Sharon's plan for withdrawing from occupied Gaza just as it was gaining momentum.
Hamas and a group known as the Fatah Hawks, from the dominant Palestinian faction to which both Abbas and Barghouthi belong, claimed responsibility for the carefully orchestrated assault.
The militants burrowed for 600 metres to reach the Rafah border post and set off a 1,500-kg bomb. They opened fire and later detonated another large blast nearby.
Israeli officials said four soldiers died and at least nine others were wounded.
Fierce fighting broke out between Israeli troops and Palestinian fighters after the bomb attacks.
A Palestinian civilian was killed after becoming caught in exchanges of gunfire, medical sources said.
Sabeer Shaloof, aged 36, was shot in the neck while in his home in the town of Rafah near the border with Egypt, the sources said.
The Fatah group said it was avenging the "assassination" of Arafat, referring to rumours widespread among Palestinians that their veteran leader was poisoned - despite denials from French and Palestinian officials and no clinical evidence that he was.
Meanwhile, Mahmud Abbas who has often spoken out against violence and is favoured by Israel and the United States looked set to succeed Arafat virtually unchallenged after Barghouthi withdrew from the presidential race on Sunday.
The firebrand uprising leader, jailed for life by Israel for masterminding attacks, said in a letter that he would back Abbas, ending an on-again, off-again presidential bid that threatened to undermine Abbas.
While Abbas had the support of Fatah, he did not have Barghouthi's credibility on the street.
Moreover, Israel agreed on Sunday to free up to 200 Palestinian prisoners, partly to show goodwill ahead of the elections, and said more releases could follow if the new Palestinian leadership reined in militants.