Israeli forces fired on a crowd of Palestinian women trying to protect gunmen hiding in a Gaza mosque, killing at least two of them and wounded several others.

Hundreds of women came to the mosque, located in the northern Gaza town of Beit Hanoun, and were urged to form a ring around the building by Hamas radio.

"Palestinian gunmen had holed up inside of this mosque," said CTV's Middle East Bureau Chief Janis Mackey Frayer, reporting from Jerusalem.

"It had been a number of hours of a standoff, and so a call to women was broadcast over the radio, which is very rare. Women responded in droves. They started to head to the mosque and that's when Israeli troops opened fire."

Hospital officials said the two killed women were both aged 40. One of the wounded, a 36-year-old housewife named Tahrir Shahin, told The Associated Press she had felt compelled to come to the mosque.

A bullet struck her leg, which doctors were forced to amputate above the knee. She has seven children.

"I was so upset about what was happening, so I answered their call," she said in hospital.

Between one dozen and three dozen gunmen had been hiding out in the mosque since Thursday, reportedly seeking refuge from Israeli troops. The militants were thought to be armed members of the ruling Hamas party's military wing.

The Israeli army said troops were reluctant to fire into the crowd but noticed two militants hiding among the women. And as the crowd dispersed, at least two men were seen disguised as women.

The large crowd that had gathered by mid-morning Friday helped the militants to escape, because there weren't enough ground troops to keep the protesters away from the building, the military said.

Israeli troops had bombarded the mosque with stun and smoke grenades, and bulldozed an outer wall of the structure in an attempt to force the gunmen to surrender.

Israeli soldiers moved into Beit Hanoun on Wednesday. On Thursday they tightened their grip on the town with helicopters, tanks and ground forces moving in to stop the barrage of rockets they believe are being fired from there into Israel.

Mackey Frayer said the situation in Beit Hanoun has been tense over the past few days and there are varying reports about how many people have been killed since Wednesday.

"The army is saying 34, most of them militants. Palestinian officials are saying the number is actually closer to 20," she told CTV Newsnet.

Later in the day, two protests erupted, with demonstrators reportedly firing at Israeli soldiers, rounding out two days of fierce fighting.

Around the town, Israeli forces lowered their profile. Soldiers stopped patrolling the streets, though snipers were still perched on rooftops and tanks were still in position on the streets.

Despite the crackdown on Beit Hanoun, rockets have continued to land in Israel.

Two Israelis were slightly injured in southern Israel on Friday when two rockets struck the region.

Israel said the Beit Hanoun operations don't indicate a wider offensive into Gaza, but was designed specifically to stop rocket attacks from that town, Mackey Frayer said.

"The defence minister made it very clear this operation wasn't going to be for show," she said.

"Israel has grown very tired and very impatient with the rockets that are constantly being fired at Israeli border towns from these northern villages like Beit Hanoun, and they said they wanted to go in there to prove their point and to try and stop the firing of rockets."

Other developments

The incursion was launched as Palestinian President Mahmoud Abbas, a moderate, tried to form a new government with Hamas.

Abbas will seek new elections if talks do not produce results in about two weeks, according to reports.

Meanwhile, former Israeli prime minister Ariel Sharon was put into intensive care after his overall condition and heart function deteriorated on Friday.

Sharon suffered a stroke in January and has been in a coma ever since.

With files from The Associated Press