Meanwhile, the "quartet" of Middle East mediators — the United States, Russia, United Nations and European Union — has issued a sharp rebuke to the Palestinian Authority, reports CBS News Correspondent Robert Berger, demanding that the Palestinian Authority implement security reforms or risk losing international support and funding.
And the head of the U.N. atomic watchdog agency said Thursday that Israeli Prime Minister Ariel Sharon is ready to discuss a nuclear weapons-free zone in the Middle East as part of future peace talks.
Thursday saw the deadliest violence in Beit Hanoun since the army invaded the area early last week in an effort to prevent militants from firing homemade rockets into Israel. The troops had remained on the outskirts of town before Thursday.
Snipers took up positions on rooftops, shooting armed men and other suspicious figures, while helicopter machine guns fired down from time to time. Palestinian gunmen took to the streets to fight the troops.
The army said it had entered the center of Beit Hanoun because rockets had been fired from the area. Armored Israeli bulldozers also destroyed dozens of olive and orange trees and razed land along the eastern side of Beit Hanoun.
Col. Avi Levy, commander of the operation, said the agricultural areas had been used for cover by militants firing rockets.
"We are taking over the same areas that they use to fire from," he said. "Unfortunately, it requires us to remove those same orchards the other side uses as cover." He said the operation would continue "as long as necessary."
Five militants, including Hamas commander Nahed Abu Ouda, were killed, Palestinian officials said. A middle-aged man and a 35-year-old woman also died.
One Israeli soldier was seriously wounded, the army said. The army said it had killed or hit at least eight Palestinians.
Palestinian witnesses reported that there were dead and wounded lying in the streets of Beit Hanoun, but they could not be evacuated because of the fierce fighting.
"We are in a real battlefield. Shooting is coming from all directions and I saw two people fall wounded in front of my house," said Ramadan Zaneen, 42, a farmer.
The army raided Beit Hanoun last week after militants fired a barrage of homemade rockets at the Israeli border town of Sderot, killing two people, including a 3-year-old boy. The deaths were the first in a Palestinian rocket attack from Gaza since fighting erupted nearly four years ago.
Palestinian militants and the army said the homemade rockets had been upgraded to make them deadlier.
The new weapon could threaten Sharon's plan to withdraw from Gaza. Hard-line critics say an evacuation of the coastal area would put more Israeli population centers in range of the inaccurate, but deadly, rockets.
Also Thursday, Israeli armored vehicles and bulldozers raided the Khan Younis refugee camp in southern Gaza in the early morning, partially or completely destroying 30 houses and wounding at least four Palestinians.
The army said the operation was aimed at destroying abandoned buildings used by militants to fire mortars and other weapons at Israeli targets.
"We condemn this and hold the Israeli government fully responsible for attempts to revive the peace process," said Palestinian Cabinet Minister Saeb Erekat.
Violence has spiraled in the Gaza Strip since Sharon announced his plans to evacuate all Gaza Strip and four West Bank settlements next year. Israel and Palestinian militants are vying to make the pullout look like a victory.
The fighting erupted hours after the so-called Quartet of Mideast mediators wrapped up a series of meetings. The diplomats arrived in the region to discuss Sharon's Gaza pullout plan, although Israel snubbed the envoys.
The Quartet wants the withdrawal to be part of the "road map," its broader peace plan that envisions an independent Palestinian state by 2005.
Israeli officials, however,with the diplomats during a stop in Jerusalem on Tuesday — the latest sign that the Jewish state is attempting to exclude Europeans from Mideast peacemaking ahead of its planned Gaza withdrawal.
Sharon's spokesman, Asaf Shariv, said Israel doesn't want to work with the Europeans on security issues. "There are a lot of other issues, like economic, that we would be happy to work on with the Europeans," Shariv said.
Shariv said Israel first wants to talk to a White House delegation arriving later this week before discussing the withdrawal plan with others.
It was a surprising rebuke from the Quartet, which Israel sees as pro-Palestinian, reports Berger. However, the mediators said they're totally disillusioned with the Palestinian Authority, which must act immediately "so that all kinds of terror, terrorism and violence comes to a complete halt," said U.N. envoy Terje Larsen.
International Atomic Energy Agency chief Mohamed ElBaradei, on a three-day trip to Israel, said Sharon gave a commitment "to work in the future toward a nuclear-free zone in the Middle East." The two men met Thursday in Jerusalem.
It was not immediately clear when such talks might take place. But ElBaradei called Sharon's comments "a very good first step" that "will send a glimmer of hope through the region."
Sharon's office did not immediately comment.
ElBaradei is on the trip in efforts to persuade the country to loosen its long-standing taboo on discussing its nuclear capabilities.
Israel is believed to be the only country in the region to have nuclear missiles ready to launch.