Security in Sinai has deteriorated sharply since February, when longtime leader Hosni Mubarak was ousted in a popular uprising. Mubarak also upheld the decades-old peace treaty with Israel.
Authorities have blamed the militants for brazen attacks on police patrols as well as a string of bombings on a key pipeline carrying natural gas to Israel and Jordan.
The attacks began around midday, when assailants targeted a packed passenger bus driving along a highway about 10 miles north of the Red Sea resort of Eilat, close to the border crossing into Sinai. Around the same time, an undisclosed number of mortar shells were fired from the Gaza Strip at Israeli soldiers conducting routine maintenance work on the security fence along the Israel-Egypt border.
The vehicle carrying the assailants fled the scene, and Israeli security forces took off in pursuit, Israel Radio said. The bus driver interviewed by Channel 2 did not provide details of the attack but appeared calm, smoking a cigarette in the driver's seat.
"We are talking about a terror squad that infiltrated into Israel," said Israeli military spokeswoman Lt. Col. Avital Leibovich. "This is a combined terrorist attack against Israelis."
The driver of the bus said he had seen Egyptian soldiers open fire, but Mordechai said he was not aware of any Egyptian military involvement.
In Egypt, a senior security official denied that the attackers crossed into Israel from Sinai or that the buses were fired at from inside Egyptian territory.
Israeli government spokesman Mark Regev said the attackers came from Gaza.
"Gaza has nothing to do with these attacks in Eilat," Nunu said.
Palestinian militants in Hamas-ruled Gaza have fired intermittent barrages of mortar shells into Israel for a decade, even after the Israeli military launched an offensive in the territory in late 2008. But in recent years Israel has not suffered the repeated deadly suicide bombings and shooting attacks of years past. The area of Thursday's attacks has been largely quiet since Israel and Egypt signed a peace deal in 1979.
At least 10 people were hurt when gunmen attacked two buses on a road near the Egyptian border in southern Israel, sparking a heavy gunbattle with security forces and reports of several deaths.
There were also unconfirmed reports on Israel’s main television stations that an anti-tank missile was fired across the border from Egypt.
Security sources said the first attack saw an unknown number of gunmen in a car open fire on a bus that was traveling to the southern Red Sea resort town of Eilat, injuring five people, most of them lightly.
Army spokeswoman Avital Leibovitch told AFP there was one shooting attack against a bus, while a second bus had been hit by a roadside bomb.
“Heavy fire was opened towards the bus. Israel’s Channel 2 television showed footage of the first bus standing on a desert road with bullet holes in the windscreen, and several windows shot out.
The gun, bomb, and rocket attacks in southern Israel were a shock but not a surprise. Ever since the fall of Mubarak, with Egypt in turmoil, the Israeli's have been worried about lax security in the Sinai peninsula and on the Gaza/Egypt border.
After the Egypt/Israel gas pipeline was attacked the Egyptian military sought to calm Israeli fears by moving extra troops into the Sinai to hunt the attackers. The Eilat attack may have proved they were not watching closely enough.
Israel relies on cameras, patrols, and Egyptian security, but the border is porous.
To guard against the influx of African migrants so desperate to get to Israel that they brave being shot by the Egyptian border guards, and to guard against terror attacks. Between 1951 and 1956 400 Israeli civilians were killed during Fedayeen attacks.