The Hamas Islamists who control the coastal enclave declared "victory" and vowed to continue firing rockets into Israel. But the Israeli government declared it had achieved its objective of deterring attacks, which have disrupted life in border towns.
At dawn, as Gaza residents streamed out of homes where they had been pinned for days by the heavy fighting, a spokesman for the Hamas armed wing said it would continue firing rockets into Israel. "The enemy has been defeated," he said.
Senior Hamas official Sami Abu Zuhri said: "Gaza will always be a graveyard for the occupation forces." On the eve of a visit by U.S. Secretary of State Condoleezza Rice, Israel had been under pressure from its ally in Washington to halt the violence after Palestinian President Mahmoud Abbas suspended U.S.-backed peace talks in protest at the bloodshed.
It carried out several air strikes overnight, killing a further three militants, medics and Hamas said. The army said it had targeted workshops involved in making rockets.
An Israeli government spokesman said after the troops pulled back on the ground: "We will continue with our defensive actions against those who fire lethal rockets at our civilians.".
Vice Premier Haim Ramon, deputy to Prime Minister Ehud Olmert told Army Radio: "This operation has run its course.
"The main goal of the Israeli government ... is to end the firing at targets in the south. There were dozens of deaths among the Hamas terorrists -- this is certainly deterrence.".