Hamas Islamists said they had fired 130 rockets towards Tel Aviv on Tuesday, unleashing a massive barrage on Israel's economic hub, in retaliation for an Israeli strike on 12-storey tower near Gaza's coast.
Air raid sirens rang out across the Tel Aviv area and into central Israel, AFP reporters and the Israeli army said.
There was no immediate indication on fatalities, or how many of the rockets were intercepted by Israel's Iron Dome air defence system.
Israeli police spokesman Mickey Rosenfeld told AFP that an empty bus had been hit in Holon, south of Tel Aviv, and that a rocket had crashed in Rishon Letzion in central Israel.
Israel's Magen David Adom rescue agency said three people in Holon had been hospitalised following the strikes.
They included a five-year-old girl, as well as two women, one 50 and one 30.
The tower struck earlier in Gaza was described by Hamas as a residential building. It also houses offices of several Hamas officials, AFP reporters said.
Hamas, had warned it would retaliate over the strike, before confirming it had launched an attack on "Tel Aviv and its suburbs with 130 missiles".
The dramatic escalation between Israel and Palestinian militant groups in Gaza, especially Hamas and Islamic Jihad, was sparked by unrest in Jerusalem, especially at the Al-Aqsa mosque compound, Islam's third holiest site.
Hamas on Monday launched rockets towards Jerusalem, which Prime Minister Benjamin Netanyahu declared as a "red line".
He has said Israel would intensify its air campaign in Gaza.
Hamas' armed wing, the Qassem Brigades, had warned it would retaliate over the strike on the tower near Gaza's coast, before confirming it had launched an attack on "Tel Aviv and its suburbs with 130 missiles".