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A woman was critically wounded and another person was moderately wounded Monday evening when one of three Kassam rockets fired at Sderot struck a car.
Five people were suffering from shock.
Streets were blocked in the area and Sderot residents ran towards the scene to try and locate loved ones. The Home Front Command was working with police to keep people away from the site.
The attack came moments before EU Foreign Policy Chief Javier Solana and Foreign Minister Tzipi Livni were due to arrive in the western Negev town for a meeting. Following the attack Sderot residents threatened to burn the tires of the car carrying the two in protest of the lack of protection from rocket attacks.
The meeting has now been postponed.
Hours earlier, Prime Minister Ehud Olmert signed a decision naming Sderot and communities surrounding the Gaza Strip as "conflict zones." The decision will allow residents to receive compensations, not only for damages sustained from direct Kassam rocket hits, but also for indirect damages caused to them.
Meanwhile, the Knesset's Finance Committee authorized Monday afternoon a financial benefits package to Sderot residents.
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Also Monday, the IAF attacked a car in the northern Gaza Strip, killing four terror operatives, Palestinian security and medical officials said.
Islamic Jihad said four of its members were killed in the raid.
The army confirmed the attack in the Jabalya refugee camp.
Earlier, the IAF attacked a metal factory in Gaza, killing one man who IDF sources said was a weapons manufacturer affiliated with Hamas.
Still, the rain of Kassams continued on Monday, as eight more rockets landed in the western Negev including four in Sderot. There were no casualties but several greenhouses were damaged. Islamic Jihad claimed responsibility for the attack on Sderot.
On Sunday, the security cabinet granted the IDF a green light to strike at terror chiefs, including politicians, involved in the nonstop Kassam rocket fire on Sderot.
Two hours after the cabinet dispersed, IAF aircraft fired a missile at a terrorist cell walking down a street in the Gaza City neighborhood of Sajiya, killing eight and wounding 13.
Palestinians said the missile struck the home of Hamas lawmaker Khalil al-Haya. But the IDF said the strike was on the terror cell and it was possible that al-Haya's home was hit by shrapnel. Palestinians said at least six of the dead were al-Haya's relatives.
Fourteen rockets were fired at the western Negev on Sunday, raising the total to more than 130 over the past week.
During the cabinet meeting, Transportation Minister Shaul Mofaz stressed the importance of striking at the Hamas leadership, claiming the tactic could eventually stop the Kassam attacks.
"We need to work in a way that is clear that they will pay a price for all Kassam attacks," Mofaz told The Jerusalem Post in an interview following the cabinet meeting. "The leadership needs to feel hunted and persecuted."