The exchange happened Sunday night in circumstances that have yet to become fully clear, but resulted in six other Palestinian deaths, and a second Israeli solider moderately wounded.
Hamas identified the deceased military commander as 37-year-old Nour Baraka of the Qassam Brigades.
The six other deceased Palestinians were named by the Palestinian Ministry of Health as 23-year-old Mohammed al-Qara, 29-year-old Khaled Ali Kwaider, 21-year-old Mustafa Abu Odeh, 25-year-old Mahmoud Musabeh, 19-year-old Alaa Fawzi Mohammed, and 21-year-old Omar Abu Khader.
Neither of the Israeli soldiers have been named.
Reports of the Palestinian deaths were followed by sirens, indicating incoming rocket fire, sounding in Israeli communities close to Gaza. The Israel Defense Forces, or IDF, said it had identified 10 launches; it said the Iron Dome aerial defense system had made two interceptions.
The IDF gave few details of the Special Forces operation that appeared to have triggered the escalation, saying only in a statement that an exchange of fire had evolved during which an officer was killed and another wounded, and that the activity had been concluded.
According to a Qassam Brigades statement, the Israeli officers entered southern Gaza near Khan Younis in a civilian car and assassinated Baraka. When the Israeli soldiers were discovered and engaged by Qassam militants, Israeli warplanes carried out airstrikes to provide cover while the soldiers escaped, the statement said.
Israeli Prime Minister Benjamin Netanyahu announced he was cutting short his visit to Paris and was returning to Israel overnight, according to a statement from his office.
In anticipation of a possible escalation of hostilities, the Palestinian Ministry of Health increased the level of alertness at hospitals and among ambulance units in Gaza.
Hamas and Islamic Jihad, the two prominent militant groups in Gaza, announced that their fighters were also on high alert. Israel blamed Islamic Jihad for the last sharp escalation over Gaza two weeks ago, accusing the group of firing dozens of rockets at Israel at the instruction of Iran.
Sunday's escalation comes just days after Qatar sent $15 million into Gaza in an attempt to alleviate the humanitarian crisis in the coastal enclave and reduce tensions along the Gaza border, which has seen often violent clashes between Israeli security forces and Palestinian protesters.
Hamas hailed the money as a victory for the Islamist group, saying it would go to pay salaries of civil servants in Gaza, and help care for those wounded in the weekly clashes.
Netanyahu, who approved the transfer of the Qatari money through Israel into Gaza, defended the move, saying in Paris on Sunday before the latest round of violence that he was trying to avoid an "unnecessary war." Speaking to reporters, Netanyahu said, "I am working in every direction to try to return the calm to the residents of the Gaza periphery and also to prevent a humanitarian crisis in Gaza. This is the decision that the [Israeli] security cabinet has made."
But Netanyahu had also struck a note of caution, suggesting he sees a long-term arrangement with Hamas in Gaza as impossible. "There is no diplomatic solution to Gaza," he said.
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