Israeli Prime Minister Ehud Olmert has warned that further Israeli military action is likely in Gaza despite pulling troops out after five days of fighting that has seen more than 100 Palestinians killed.
"We are in the midst of a combat action. What happened in recent days was not a one-time event," Olmert reportedly told a parliamentary panel.
"The objective is reducing the rocket fire and weakening Hamas," Olmert said.
Earlier today, the Israeli government declared it had achieved its objective of deterring rocket attack on its territory.
The Palestinian militant group Hamas claimed victory over Israeli forces and held a rally in Gaza City.
Hamas says it fires rockets in self-defence and that it would stop if Israel halted all military activity in Gaza and the occupied West Bank, and ended its embargo on the Gaza Strip.
At dawn, a spokesman for the Hamas armed wing said it would continue firing rockets into Israel. "The enemy has been defeated," he said. A senior Hamas official said: "Gaza will always be a graveyard for the occupation forces."
On the eve of a visit by US Secretary of State Condoleezza Rice, Israel had been under pressure from its ally in Washington to halt the violence after Palestinian President Mahmoud Abbas suspended US-backed peace talks in protest at the bloodshed.
It carried out several air strikes overnight, killing a further three militants, Hamas said. The army said it had targeted workshops involved in making rockets.
An Israeli government spokesman said after the troops pulled back on the ground: "We will continue with our defensive actions against those who fire lethal rockets at our civilians."
Vice Premier Haim Ramon, deputy to Prime Minister Ehud Olmert, said: "This operation has run its course. The main goal of the Israeli government . . . is to end the firing at targets in the south. There were dozens of deaths among the Hamas terrorists - this is certainly deterrence."
A Palestinian carries the body of 21-month-old Salsabeel Abu Jalhoum, killed in an Israeli attack
Hamas officials said they found four bodies in northern areas of the Gaza Strip following the Israeli withdrawal, taking the Palestinian death toll since Wednesday to 112.
Medics said about half of those have been civilians, including women and children.
The United Nations condemned Israel for using "excessive force" and Mr Abbas, whose Western-backed forces lost control of Gaza to Hamas in June, said he would not resume talks with Mr Olmert until it ended.
Ms Rice is due to arrive on tomorrow for scheduled, separate meetings with Mr Abbas and Mr Olmert.
On Saturday, 61 people including 30 civilians were killed in the bloodiest day for Palestinians since their 1980s uprising.
Two Israeli soldiers were killed in the fighting and on Wednesday an Israeli civilian was killed by a rocket, the first such death since May.