Palestinian militants fired volleys of rockets from Gaza into Israel, which responded with air strikes in the early hours of Thursday in the biggest escalation since an 11-day war last year.

A rocket from Gaza on Wednesday evening fell harmlessly in a garden in the southern Israeli city of Sderot, police said.

Israel struck back in central Gaza after midnight, witnesses and security sources said, prompting further launches of at least four rockets by militants in the besieged territory.

Israel said its jets had targeted a military post and a tunnel complex "containing raw chemicals used for the manufacturing of rocket engines". 

Hamas, the Islamist movement which rules the Gaza Strip, said it had fired surface-to-air rockets at Israeli planes.

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The exchanges come after nearly a month of deadly violence in Israel and the Palestinian territories, focused on Jerusalem's flashpoint Al-Aqsa Mosque compound, known to Jews as the Temple Mount.

Israeli police said Thursday that dozens of rioters had thrown stones and petrol bombs from the mosque.

"A violent splinter group is stopping Muslim worshippers from entering the mosque and causing damage to the site," the police alleged.

Seven Palestinians, all residents of Israeli-annexed east Jerusalem, had been arrested on suspicion of taking part in "violent incidents" on Wednesday, it added.

- 'Death to the Arabs' -

Hours earlier, Israeli police had blocked crowds of Jewish ultra-nationalist protesters from approaching the Muslim quarter of Jerusalem's Old City, aiming to head off an escalation after four weeks of violence that have left at least 36 people dead.

Last year, a similar ultra-nationalist march had been scheduled in the Old City when Hamas launched a barrage of rockets towards Israel, sparking the 11-day war.

Early Wednesday evening, more than 1,000 ultra-nationalist demonstrators waving Israeli flags had gathered, some shouting "death to the Arabs", but police blocked them from reaching Damascus Gate and the Old City's Muslim quarter.

Far-right lawmaker Itamar Ben Gvir, a controversial opposition politician, led the protest after being barred from the Damascus Gate area earlier in the day by Prime Minister Naftali Bennett. 

"I'll say it clearly, I'm not going to blink, not going to fold," Ben Gvir told AFP, as his supporters chanted "Bennett go home!"

"I'm not allowed to enter Damascus Gate," the former lawyer said. "Based on what law?"

Bennett said earlier that he had blocked the rally for security reasons.

"I have no intention of allowing petty politics to endanger human lives," he said.

"I will not allow a political provocation by Ben Gvir to endanger IDF (Israeli army) soldiers and Israeli police officers, and render their already heavy task even heavier." 

Ben Gvir retorted Thursday that "some Jews don't surrender to Hamas".

- 'Deeply concerned' -

Tensions are high as the Jewish Passover festival coincides with the Muslim holy month of Ramadan.

Palestinians and Israeli Arabs carried out four deadly attacks in Israel in late March and early April that claimed 14 lives, mostly civilians.

A total of 23 Palestinians have been killed since March 22, including assailants who targeted Israelis, according to an AFP tally.

On Tuesday, Israel carried out its first strike on Gaza in months, in response to the first rocket since January from the Palestinian enclave.

UN chief Antonio Guterres said he was "deeply concerned by the deteriorating situation in Jerusalem".

He added that he was in contact with the parties to press them "to do all they can to lower tensions, avoid inflammatory actions and rhetoric".

Bennett, himself a right-winger and a key figure in Israel's settlement movement, leads an ideologically divided coalition government.

His coalition this month lost its majority in the 120-seat Knesset, Israel's parliament, after a member left in a dispute over the use of leavened bread products in hospitals during Passover.

Then on Sunday, the Raam party, drawn from the country's Arab-Israeli minority, suspended its support for the coalition over the Al-Aqsa violence.

Right-wing lawmakers are under pressure to quit Israel's government, which is seen by some on the right as being too favourable to Palestinians and Israel's Arab minority.