One Israeli soldier was killed and three others were wounded on Tuesday morning when terrorists in the Gaza Strip detonated a roadside bomb against their patrol vehicle along the border fence.
Other Israeli troops engaged the terrorists, killing one according to Palestinian sources.
It was the first serious act of violence since Israel and Hamas declared separate unilateral ceasefires ending the 21-day Gaza war more than a week ago.
Israel's leadership previously declared that any violations of the ceasefire would be met with a ferocious Israeli military response.
Defense Minister Ehud Barak called the bombing "a serious attack. We cannot accept it and we will respond."
Foreign Minister Tzipi Livni, who like Barak is trying to bolster her security credentials ahead of next month's general election, said that "Israel needs to respond" to the latest provocation.
Whether those threats translate into action against Hamas remains to be seen. As much as Barak and Livni want to be seen by Israelis as capable wardens of the nation's security, they also fear a major international diplomatic backlash, especially with a new president in Washington.