An Israeli soldier posted at the Kerem Shalom border crossing at the southern tip of the Gaza Strip was critically wounded after being shot by a Palestinian Arab sniper on Sunday.
Two different Hamas-affiliated terror groups claimed credit for the attack.
Earlier in the day, Israeli troops operating near southern Gaza's defunct international airport killed four terrorists during an incursion aimed at curbing Palestinian rocket fire on southern Israel.
Speaking at Sunday's cabinet meeting, Prime Minister Ehud Olmert said Israel would also continue to impose a limited embargo on electricity and industrial fuel to the Gaza Strip until Palestinian forces based there stop launching rockets at civilian populations in Israel's western Negev region.
A rocket fired from northern Gaza on Sunday landed next to and damaged a house in the battered southern Israel town of Sderot. Five people were treated for severe shock following the attack.
Officials pointed out that the damaged house is located adjacent to a kindergarten, and that a far greater tragedy was narrowly averted.
Hundreds of residents of Sderot and surrounding communities continued on Sunday to protest opposite Mr. Olmert's office in Jerusalem, demanding that the prime minister either authorize the level of military force needed to protect them, or resign.