Air raid sirens are wailing across Jerusalem as press reports speak of three blasts in the city, just hours after a rocket fired by militants in Gaza landed in the sea off Tel Aviv.
There was no immediate comment from Israeli police or the army, with both saying they were checking into the incident.
Gaza militants targeted Tel Aviv on Friday with another rocket, defying Israeli warnings of a possible ground assault to follow its aerial bombardment of the Hamas-run strip.
Police and a witness said the rocket crashed into the sea off Tel Aviv in the second incident in as many days, as sirens wailed across the city.
Friday's rocket was the farthest that one from Gaza had ever hit inside Israel, and it sparked panic among beachgoers, although several people tried to swim out to the point where the rocket landed, the witness said.
The provocative attack came as world leaders urged Egypt to use its influence with Gaza's Hamas rulers to stamp out the rocket fire that sparked a vast Israeli air offensive launched on Wednesday in which 23 Gazans have already died.
Three Israelis were killed on Thursday in one riposte by militants.
With the rocket fire intensifying, the Israeli army said it had started calling up 16,000 reservists, with officials saying the military was preparing for a possible ground offensive into Gaza.
"As part of Operation Pillar of Defence, the IDF (army) will begin recruiting 16,000 reservists," the military said on its official Twitter feed.
Senior cabinet minister Moshe Yaalon warned that Israel was considering a ground operation in order to stamp out rocket fire.
"We are preparing all the military options, including the possibility that forces will be ready to enter Gaza in the event that the firing doesn't stop," he wrote in a series of postings on his official Twitter account.
An AFP correspondent on the Israeli side of the border reported seeing tanks massed along the frontier, and a steady stream of reserve soldiers arriving for duty in the area.
The escalating conflict sparked urgent calls by world leaders for restraint, some urging Egypt to use its influence with Hamas to try to secure a ceasefire.
The calls came as Egyptian Prime Minister Hisham Qandil visited Gaza City, where he said Cairo would intensify efforts for a truce but also urged world leaders to end Israel's "aggression" in Gaza.
Ahead of his arrival, a senior Israeli official said Prime Minister Benjamin Netanyahu had agreed to an Egyptian request to halt its fire during the visit.
But Hamas and other armed groups in Gaza made no mention of any truce, and shortly after Qandil crossed into the territory, Hamas's armed wing said it had fired 42 rockets into Israel.
Palestinian security and medical officials told AFP Israeli planes had carried out an air strike on northern Gaza that killed two people, one of them a child. Israel denied carrying out an air strike in the area.
Speaking at Gaza City's Shifa hospital after seeing the bodies of those killed in the incident, Qandil vowed to intensify Cairo's efforts to secure a ceasefire.
"Egypt will not hesitate to intensify its efforts and make sacrifices to stop this aggression and achieve a lasting truce," he told reporters.
"What I saw today in Gaza, at the hospital, with the martyrs, cannot be met with silence... and the whole world should take responsibility to stop the aggression."
Photo: Israeli Tanks Gather on Gaza Border (Getty Images)