Air raid sirens signalling a rocket strike have been sounded in several major central Israel cities, including Tel Aviv and Rishon Letzion.
The Israeli Defence Forces (IDF) said the Israeli missile defence system, Iron Dome, shot down the single rocket, tweeting:
Residents scrambled to take shelter as the Code Red alert sounded in the central area.
Islamist militant group Islamic Jihad claimed responsibility for the rocket launch.
It was the first time in two years that a Code Red alarm has sounded in Tel Aviv, Israel's commercial capital, which lies some 70 km (45 miles) north of the Gaza Strip.
A peace conference sponsored by Haaretz newspaper and held at Tel Aviv's David Intercontinental Hotel was briefly evacuated.
Haaretz US editor Chemi Shalev tweeted:
Numerous high profile politicians and officials took part in the conference, including President Shimon Peres and Justice Minister Tzipi Livni. Both spoke hours before the rocket alert.
Earlier, authorities had instructed Tel Aviv residents to ready private protected rooms and shelters and open public bomb shelters in schools across the city.
IDF said that Hamas has fired more than 130 rockets towards Israel since last night.
Tensions in the region are at their highest for years following the murders of three Israeli teenagers in the occupied West Bank and the revenge killing of a Palestinian teenager in Jerusalem.
In response to rocket fire, Israel has launched a military offensive in the Gaza Strip.
The army said it conducted air strikes in the region. Last night, 12 Palestinians were killed as Israel bombarded dozens of targets in the Strip.
Four Palestinians were killed by a targeted strike on their car in Gaza City while another airstrike on a house in Khan Younis, a southern area in Gaza Strip, killed at least seven Palestinians and wounded more than 20 people.