The bloody raid raised concerns that Hamas would seek revenge by carrying out suicide bombings or shooting attacks in Israel. Israeli-Palestinian peace talks are at a sensitive stage, with only two months left for negotiators to formulate a framework for a peace agreement. Terror attacks have halted talks in the past.
In the Gaza Strip, a Hamas spokesman hinted at possible revenge attacks.
"Israel carries the full responsibility for this killing, and we say that we have the total right to defend ourselves and to react to this criminal act," said the spokesman, Ismail Abu Shanab.
Deputy Defense Minister Efraim Sneh said Israel would retaliate harshly against anyone involved in deadly attacks on Israelis.
One of those killed Monday, identified as Iyyad Batat, was held responsible for a shooting attack in which an Israeli border policeman was killed last year.
"There is an automatic contract on anyone from Hamas who commits murderous attacks," Sneh told Israel radio. "I had said that within a year those attackers (of the border policeman) would die and see, it took less than a year."
The raid of the Hamas hide-out began Monday evening, shortly after the evening meal observant Muslims eat to break their daylong fast during the holy month of Ramadan.
This morning, Israeli army troops had cleared out and Palestinian youths were burning tires in the street in protest. An elderly village woman clutched a bloodied red keffiyeh found on the house's roof, where the other man was slain. "God is great!" she screamed. "This is the blood of martyrs."
Israeli commandos surrounded the house where the five were staying. Neighbors heard shots and hand-held rocket fire. Troops used a headlight from a hovering helicopter and flares to light the house.
Maj. Gen. Yitzhak Eitan, in charge of troops in the West Bank, said the fugitives fired at the soldiers and were killed in the ensuing shootout.
Eitan said the troops acted on a tip that the militants were planning attacks to mark the 12th anniversary of Hamas' founding. The militant group was formed in the Gaza Strip in December 1987, at about the time the six-year Palestinian revolt against Israeli occupation of the West Bank and Gaza erupted.
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