GAZA CITY, Gaza Strip -- Israel expanded its air assault on rocket-launching operations in the Gaza Strip early today, striking Hamas government and security compounds, smuggling tunnels and electricity sources after an unprecedented Hamas rocket strike on the holy city of Jerusalem raised the stakes in its violent confrontation with the Palestinian militants.

Israeli aircraft also kept pounding their initial targets, the militants' weapons-storage facilities and underground rocket-launching sites. The Israelis called up thousands of reservists and massed troops, tanks and armored vehicles along the border with Gaza, signaling a ground invasion of the densely populated seaside strip could be imminent.

Israel launched its military campaign Wednesday after days of heavy rocket fire from Gaza and has carried out about 700 airstrikes since, the military said. The Islamic militants, undaunted by the heavy damage the airstrikes have inflicted, have unleashed about 500 rockets against the Jewish state, including new, longer-range weapons turned for the first time this week against Jerusalem and Israel's Tel Aviv heartland.

Israel has slowly expanded its operation beyond military targets and, before dawn today, the Gaza Interior Ministry reported, missiles smashed into two small Hamas security facilities, as well as the massive Hamas police headquarters in Gaza City, setting off a huge blaze that engulfed nearby houses and cars parked outside. No one was inside the buildings at the time.

The retaliation from Israel was triggered by several days of heavy rocket fire from Gaza. On Wednesday, in a targeted killing, Israel assassinated Ahmed Jabari, the military chief of the ruling Hamas militant group. Israel then conducted dozens of airstrikes on weapons-storage sites used by rocket squads.

Israeli leaders have threatened to widen the operation if the rocket fire doesn't halt. Foreign Minister Avigdor Lieberman said options included the possible assassination of Hamas' prime minister, Ismail Haniyeh, and other top leaders.

"Every time that Hamas fires, there will be a more and more severe response," he told Channel 2 TV. "I really recommend all the Hamas leadership in Gaza not to try us again.  . . . Nobody is immune there, not Haniyeh, and not anybody else."

Israeli military officials insist they have inflicted heavy damage on Hamas, but there has been no halt to the militants' rocket fire. Hundreds of rockets have been fired, including a number of sophisticated weapons never before used.

The rocket attack on Jerusalem was unprecedented, setting off the eerie wail of air-raid sirens across the city shortly after the beginning of the Jewish Sabbath, a time when roads are empty. Police said the rocket landed in an open area southeast of the city. Earlier Friday, Hamas fired a rocket at Tel Aviv that also landed in an open area.

Israel's two largest cities have never before been exposed to rocket fire from Hamas-ruled Gaza.

Over the past three days, Israel has struck suspected rocket-launching sites and other Hamas targets in Gaza with scores of airstrikes, while Hamas has fired more than 450 rockets toward Israel. In all, three Israelis and 27 Palestinians have been killed.

On Friday, the Israeli army sent text messages to about 12,000 Gaza residents warning them to steer clear of Hamas operatives.

An attack on Jerusalem, claimed by both Israel and the Palestinians as their capital, was especially bold, both for its symbolism and its distance from the Palestinian territory. Located roughly 50 miles from the Gaza border, Jerusalem had been thought to be beyond the range of Gaza rockets.

"We are sending a short and simple message: There is no security for any Zionist on any single inch of Palestine, and we plan more surprises," said Abu Obeida, a spokesman for Hamas' armed wing.

It marked a bit of a gamble for the militants. The rocket landed near the Palestinian city of Bethlehem and just a few miles from the revered Al-Aqsa Mosque in Jerusalem's Old City, one of Islam's holiest sites.

Hamas, an Iran-backed group committed to Israel's destruction, was badly bruised during its last full-fledged confrontation with Israel four years ago that ended with an informal truce, although rocket fire and Israeli airstrikes on militant operations continued sporadically.

Just a few years ago, Palestinian rockets were limited to crude, homemade devices manufactured in Gaza. But in recent years, Hamas and other armed groups have smuggled in sophisticated, longer-range rockets from Iran and Libya, which has been flush with weapons since dictator Moammar Gadhafi was ousted last year.

Hamas said the rockets aimed at the two Israeli cities Friday were made in Gaza, a prototype the militants call M-75, and have a range of about 50 miles. The Israeli military also released a video of what it said was an attempt by Hamas to launch an unmanned drone aircraft. Neither weapon was previously known to be used by Hamas.

Israeli Prime Minister Benjamin Netanyahu huddled with his emergency Cabinet Friday night. Israeli media reported the meeting approved a request from Defense Minister Ehud Barak to activate 75,000 reservists. Earlier this week, the government approved a separate call-up of as many as 30,000 soldiers. Combined, it would be the biggest call-up of reserves in a decade.

Lt. Col. Avital Leibovich, a military spokeswoman, said 16,000 reservists were called to duty on Friday and others could soon follow.

She said no decision had been made on a ground offensive but all options are on the table. Dozens of armored vehicles have been moved to Israel's border with Gaza since fighting intensified Wednesday.

The violence has widened the instability gripping the region, straining already frayed Israel-Egypt relations. The Islamist government in Cairo, linked like Hamas to the regionwide Muslim Brotherhood, recalled its ambassador in protest and dispatched Prime Minister Hesham Kandil to show solidarity with Gaza.

Kandil called for an end to the offensive while touring Gaza City's Shifa Hospital with Haniyeh, the Gaza prime minister who was making his first public appearance since the fighting began.

An Egyptian intelligence official, meanwhile, said an Egyptian proposal for a cease-fire in Gaza was presented Friday to Haniyeh and other Hamas leaders. The details were not made public.

However, Hamas replied that a cease-fire was premature because Jabari's "blood has not dried yet."

The Egyptian official said Hamas officials promised to study the cease-fire proposal again in the coming days. The official spoke on condition of anonymity because he was not authorized to release the information.

A senior Hamas official confirmed that Egypt, which often mediates between Hamas and Israel, was working behind the scenes to arrange a truce.

The official, speaking on condition of anonymity because he was discussing a sensitive diplomatic matter, said Hamas was demanding an end to Israeli strikes, limits on Israeli ground activities along the border, a permanent halt to assassinations of Hamas leaders and an end to Israel's blockade of Gaza.

"These conditions must be honored and sponsored by a third party," he said. "We will stop all armed activities out of Gaza in return."

An Israeli official refused to say whether Egypt or any other country was involved in cease-fire efforts but said Israel would not settle for anything less than a complete and long-standing halt to the rocket fire. "We're not interested in a timeout that returns us to square one," he said, speaking on condition of anonymity because he was not allowed to discuss the matter with the media.

Federman reported from Jerusalem. Aya Batrawi, in Cairo, and Ian Deitch, in Jerusalem, contributed reporting.