Two missiles slammed into the southern Israel resort town of Eilat early Wednesday morning, causing damage to a residential area, but, miraculously, no injuries.
Area children, who had only recently arrived for school, were rushed to bomb shelters.
Israeli forces said the missiles were fired from the Sinai Peninsula, where various regional terrorist groups including Hezbollah and Al Qaeda are known to have set up shop in recent years.
Egypt initially rejected reports that the attack had emanated from Sinai, but later Egyptian forces began searching the area for possible launch sites.
Israeli Water and Energy Minister Silvan Shalom spoke for the government when he issued the following statement:
"Yesterday we celebrated Independence Day and this morning we received a painful reminder of the reality in which we exist. The shooting highlights our need to protect ourselves and not put our fate in the hands of others."
Later in the day a Salafi Muslim group calling itself the Mujahedeen Shura Council claimed credit for the attack, announcing on its website that its fighters had managed to "target occupied Eilat with two Grad rockets."