An Israeli gangland bombing that initially raised fears of a Palestinian suicide attack killed three people and wounded more than 19 others yesterday at a money-changer's shop on a busy Tel Aviv street.

At Gaza Strip, Israeli soldiers meanwhile killed five Palestinians during gun battles that erupted after an armoured push into Rafah refugee camp to detain an Islamic Jihad militant, witnesses say. Palestinian officials identified the dead as four civilians, including a medic, and a gunman.

In scenes reminiscent of suicide

bombings that have killed hundreds of Israelis in three years of violence, ambulances raced to the area and radio stations interrupted their regular broadcasts to report on the explosion in Tel Aviv.

Israel Police Commissioner Shlomo Aharonishky told reporters after the blast, "We are declaring war against the underworld -- and this will be a war we will win."

Zeev Rosenstein, who has survived four underworld attacks since 1996, was slightly wounded in the blast that blew out windows on busy Yehuda Halevy street in Israel's business capital.

"The target of the criminal attack was Zeev Rosenstein and the blast occurred when he left the shop," said Tel Aviv police district commander Yossi Sedbon. "He was injured along with his bodyguards."

Police said two people were killed immediately in the blast. A third victim died later in Tel Aviv's Ichilov Hospital. The Magen David Adom ambulance service said it treated 26 wounded.

A Reuters correspondent saw one body, limbless, on the floor at the front of the money-changer's shop.

"Rosenstein was slightly hurt but he is all right and being treated in hospital," said his lawyer, Keren Nahari.

Rosenstein was arrested earlier this month on suspicion of involvement in what police described as the killing of criminal rivals but was released without charge.

Witnesses at Gazza said yesterday it was the biggest Israeli raid in the area since ceasefire talks involving the Palestinian authority and militants broke down last weekend.

At least 17 Palestinians were wounded, including four children and several gunmen, doctors at Rafah hospital said.

An Israeli military source said troops were on a mission to detain a wanted Islamic Jihad militant and returned fire after encountering resistance from gunmen who attacked them with anti-tank missiles and automatic weapons.

Troops believed they killed

three gunmen, the source said.

Witnesses said infantry and 20 armoured vehicles, including tanks, took part in the raid as helicopters flew overhead.

Colonel Pinhas Zuarez, commander of the operation, said his forces took the wanted man, Khaled al-Qadi of Islamic Jihad, into custody after he tried to flee.

"He had planted numerous explosive charges on the road (leading to) the border terminal (with Egypt) and also was involved in planning attempts to infiltrate Israel and carry out attacks, " Zuarez told Reuters in Jerusalem by telephone.

The army demolished Qadi's family home before pulling out.

At least 10,000 mourners, shouting for revenge, marched in funeral processions for the dead. About 100 armed militants, firing in the air, also took part.

"Sharon prepare coffins," protesters chanted in warning to the Israeli prime minister.

Hamas and Islamic Jihad, dedicated to Israel's destruction, have carried out suicide bombings inside the Jewish state and attacked soldiers and Jewish settlers in the Gaza Strip and West Bank during a Palestinian uprising that began in September 2000.

Palestinian Prime Minister Ahmed Qurie described the raid in comments to reporters in the West Bank as a crime and an "ugly aggression against our people".

Israeli forces regularly conduct searches in the Rafah area for militants and tunnels used for smuggling weapons from Egypt.