Israel and militants in Gaza began observing an Egyptian-brokered truce on Tuesday after four days of violence, which officials on both sides warned could flare up again.

The ceasefire was holding after more than 72 hours of cross-border fighting in which 25 Gazans were killed, most of them militants, and 200 rockets were fired at Israel.

Under the deal, which came into force at 1:00 am (2300 GMT on Monday), both Israel and militants from Islamic Jihad, who were responsible for the lion's share of the rocket attacks, agreed to hold their fire.

More than 15 hours later, the nascent truce appeared to be largely holding, although Israeli police said eight rockets and mortar shells had landed, without causing injury or damage.

And the skies over Gaza remained calm.

Home Front Defence Minister Matan Vilnai confirmed Israel had reached an unwritten "understanding" with militant groups in Gaza and was now watching to see it was being observed.

"Apparently things are calming down and this round of confrontations appears to be behind us," he told public radio.

His words were echoed by Defence Minister Ehud Barak: "This morning the situation is relatively quiet," he told reporters.

In Gaza, an Islamic Jihad spokesman said the radical group was willing to respect the deal, but Israel must end its targeted killings of militants.

"We accept a ceasefire if Israel agrees to apply it by ending its aggressions and assassinations," Daud Shihab told AFP.

Both parties warned, however, that the agreement would be short lived if the other side stepped out of line.

"Our message is clear," Prime Minister Benjamin Netanyahu told a conference of senior civil servants in Jerusalem. "Calm will bring calm. Anyone who disturbs it, or even tries to disturb it, will be in our gunsights."

"Any Israeli violation requires a strong response by all factions," said Fawzi Barhum, a spokesman for Gaza's Hamas rulers, who have been seeking Cairo's help to restore calm.

The truce, he said, "was not meant to tie the hands of the resistance and its right to respond forcefully to the killings and attacks."

News of the agreement emerged early on Tuesday after Cairo brokered what an Egyptian intelligence official described as a "comprehensive and mutual" truce.

"An agreement on ending the current operations between the two sides, including a halt to assassinations, came into force at 1:00 am," he told AFP, saying the deal resulted from "intensive contacts" with both sides.

But Vilnai denied Israel had agreed to halt the assassinations.

"Anyone involved in terrorism against Israel needs to know that they are in our sights," he warned.

Senior Israeli defence ministry official Amos Gilad told reporters the deal had been concluded with Egypt, without direct contact with Gaza's Hamas rulers.

"We have agreed to quietness on condition there will be quietness," he said.

Egypt has been involved in brokering numerous truce agreements between Israel and Gaza militant groups, but a Hamas MP on Monday accused Cairo of using Gaza's ongoing fuel crisis to put pressure on the Islamist movement to enforce a ceasefire on the ground.

"Egyptian intelligence officials offered to provide the government with the fuel needed to operate the power plant, to resume transportation and the operation of factories, in exchange for a truce on the ground in Gaza," Yunes al-Astal said in a statement sent to AFP.

Gaza has just one power plant, which shut down three times in the past two months due to fuel shortages, although Egypt has agreed to provide enough fuel to allow it to operate.

The current round of violence kicked off on Friday with Israel's assassination of the head of the radical Popular Resistance Committees (PRC).

The strike prompted militants to fire hundreds of rockets and mortar rounds into southern Israel, wounding people and prompting the closure of schools within firing range of Gaza.

In response, the air force carried out dozens of raids air, targeting militants and weapons facilities.

Palestinian medics put the total death toll late on Monday at 25, with more than 80 injured.

Of those killed, 19 were militants -- 14 from Islamic Jihad, and five from the PRC -- and six were civilians, among them two minors.