An Israeli raid to destroy a Gaza tunnel ignited clashes in which tank fire killed four Hamas commanders and five Israeli soldiers were wounded, both sides said Friday.

In one of the deadliest flareups in Gaza since an October 2012 conflict, warplanes carried out an air strike after Palestinian militants lobbed between one and three mortar shells into southern Israel.

Palestinian foreign minister Riyad al-Malki on Thursday denounced Israeli plans to build hundreds of new settler homes in east Jerusalem, threatening to pursue international legal action in response.

Israel announced on Wednesday it would build 1,500 new settler homes in the mostly Arab sector of Jerusalem, immediately after the Jewish state released 26 long-serving Palestinian prisoners in line with its commitments to U.S.-backed peace talks.

Israel is planning to move ahead with another 3,360 new settler homes in the West Bank, Haaretz newspaper reported on Thursday, quoting an MP from the ruling rightwing Likud party.

Prime Minister Benjamin "Netanyahu's government will begin advancing a series of construction plans in east Jerusalem and the West Bank to the tune of some 5,000 new housing units, in an effort to 'offset' the release of Palestinian prisoners earlier this week," the paper said.

The European Union on Thursday said it "deplores" Israel's decision to build new settler homes in East Jerusalem, recalling that settlements were illegal under international law.

Israeli Prime Minister Benjamin Netanyahu on Wednesday agreed plans to build 1,500 new settler homes in the city's Arab sector, a move the Palestinians said "destroys the peace process".

Israel's army arrested three senior members of the Islamist Hamas movement overnight, Palestinian security sources said on Thursday, in the second such arrest operation this week.

The three men -- Jamal Tawil, Hussein Abu Kwayk and Faraj Romana -- were arrested in the West Bank city of Ramallah.

Israel rejected a proposal by the U.S. to resolve the dispute with Lebanon over the two countries Exclusive Economic Zone (EEZ), media reports said on Thursday.

According to the Israeli business newspaper the Globes, sources in the Israeli Ministry of Foreign Affairs rejected to comment on the matter “due to its sensitivity.”

Plans to build 1,500 new Israeli settler homes in east Jerusalem do not create a "positive environment" for ongoing peace negotiations with the Palestinians, a senior U.S. official said Wednesday.

Palestinians have reacted angrily to the plans announced just hours after Israel freed 26 Palestinian prisoners, accusing the Jewish state of trying to wreck the peace talks.

The Palestinians accused Israel Wednesday of trying to wreck peace talks with plans to build 1,500 new settler homes in east Jerusalem, hours after it freed 26 Palestinian prisoners.

A spokesman for Palestinian president Mahmoud Abbas, Nabil Abu Rudeina, said the move "destroys the peace process and is a message to the international community that Israel is a country that does not respect international law".

A Saudi court on Wednesday sentenced a Jordanian to nine years in prison and 80 lashes after he was convicted of spying for Israel, local media reported.

The specialized court charged the man with "contacting Israeli Prime Minister (Benjamin Netanyahu) and contacting a Zionist intelligence officer in voice and picture via email, as well as agreeing to go to them and cooperate with their intelligence," reported Alriyadh daily on its website.

Israel's deputy defense minister on Wednesday urged the United States to sideline Middle East peace talks in favor of dealing with the Iran nuclear issue as a priority.

Danny Danon, a hardline member of Prime Minister Benjamin Netanyahu's Likud party, said that a peace agreement with the Palestinians was "wishful thinking" in the time frame set aside by the U.S. administration.