Hamas militants launched on Sunday their first deadly raid into Israel from Gaza since an Israeli pullout last year, killing two soldiers while another was abducted, in an assault in which two attackers died.

The infiltration, through a tunnel militants dug under the Gaza border fence to reach an army post, raised tensions along the frontier to their highest point since Israel completed its withdrawal last September after 38 years of occupation.

Israeli leaders ordered the army to prepare for "urgent military action" and a "harsh response", including targeting civilian infrastructure and possibly striking at elected leaders of the Hamas-led Palestinian government, officials said.

Israel's Channel One television said the cabinet had authorized an aerial blitz against militant targets and an Israeli ground strike into the Gaza Strip. It said that Israeli troop reinforcements had been moved to the Gaza border.

But Israeli ministers decided to hold off on any immediate action, and allow two days for talks through diplomatic channels to try to free the soldier, an Israeli political source said.

"This was a very serious Hamas terrorist attack," Israeli Prime Minister Ehud Olmert said before the closed-door meeting.

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