Israel launched a Gaza ground campaign after 10 days of bombardments from the air and sea failed to stop militants' rocket attacks, stepping up an offensive that already has taken a heavy toll in civilian lives.
Israel signaled the invasion would be limited in scope - targeting tunnels dug by gunmen - and said it was not intended to topple Hamas, the Gaza Strip's dominant Islamist group.
Explosions lit up the sky in the early hours of Friday and residents in several areas of the densely populated strip of 1.8 million Palestinians said they saw small numbers of Israeli tanks that had crossed the border from Israel.
A statement from Prime Minister Benjamin Netanyahu's office late on Thursday said he had given orders to destroy tunnels that militants use to infiltrate Israel and carry out attacks.
The news unsettled stock markets already reeling from the shooting down of a Malaysian Airlines plane over Ukraine earlier in the day. The Dow Jones industrial average closed roughly 160 points lower.
An Israeli military spokesman said Israel was not out to try to topple Hamas.
Hamas spokesman Sami Abu Zuhri responded with defiance to Israel's invasion announcement, telling Reuters: "We warn Netanyahu of the dreadful consequences of such a foolish act."
Gaza residents and medical officials reported heavy shelling along the eastern border from the southern town of Rafah to the north of the strip.
Residents said heavy clashes took place along the border, including in the northern towns of Beit Hanoun and Beit Lahiya.
Orange flashes lit up the eastern Gaza Strip as Israeli gunboats off the Mediterranean coast fired shells and tracer bullets. Israeli artillery pounded the area and helicopters fired across the border, Reuters witnesses said.