(Adds one dead in Gaza factional fighting, edits)

By Nidal al-Mughrabi

GAZA, June 9 (Reuters) - Palestinian militants from the Gaza Strip infiltrated into Israel at a key border crossing on Saturday, igniting a fire fight in which one gunman was killed, and prompting Israeli threats of further violence.

Inside Gaza, rival factions waged their fiercest gun battles in weeks, in fighting that killed a local Hamas commander and wounded more than 30 gunmen and civilians from Hamas and the rival Fatah movement, medics and witnesses said.

The Israeli army said four to five militants entered Israeli territory near the Kissufim crossing in the first major cross-border raid since Palestinian militants captured Israeli soldier Gilad Shalit near the Gaza border a year ago.

Israel said it would respond by continuing the raids into Gaza it has stepped up since a surge in rocket and mortar attacks on its towns began last month.

Saturday's daytime attack was carried out jointly by Islamic Jihad and a unit of al-Aqsa Martyrs Brigades, an offshoot of President Mahmoud Abbas's Fatah faction.

Militants riding in a jeep crashed into the crossing gate at Kissufim as mortar bombs and rocket-propelled grenades provided cover, said Abu Ali, a spokesman for the al-Aqsa unit. Israel said the gunmen blew a hole in the fence and then infiltrated.

Islamic Jihad said most of the gunmen withdrew into Gaza but one remained in Israeli territory, where he came under fire from Israeli ground forces and aircraft.

The army said the jeep used in the attack was emblazoned with the letters "TV" for television. Reuters television footage showed the vehicle had "TV" written on the front hood.

Abu Ali of al-Aqsa said the vehicle was marked with the U.N. insignia while Islamic Jihad denied any markings were on the vehicle at all.

The Foreign Press Association in Israel condemned the militants' use of a media-marked vehicle as "a grave development" that could jeopardise the safety of journalists travelling in armoured vehicles in Gaza for their protection.

KIDNAP

Gunfire and explosions could be heard during the nearly three-hour-long battle as unmanned aircraft and helicopters hovered overhead.

Israeli General Yoav Galant told Israeli television soldiers had "prevented what was apparently intended as an attempted kidnapping" of an Israeli.

Major Tal Lev-Ram, a spokesman for the army's southern command, denied Islamic Jihad assertions that militants had killed one soldier during the operation, and said the Israeli side sustained no injuries.

Saturday's attack was the biggest since Palestinian militants tunnelled under the Gaza border and kidnapped Shalit on June 25, 2006. Shalit remains in captivity.

Islamic Jihad identified the gunman who was killed as a 21-year-old from Gaza City.

Israel stepped up its military operations in Gaza last month in response to a surge in cross-border rocket attacks against Israeli towns.

Lev-Ram, the military spokesman, said the attack showed a need for the military to continue its raids in Gaza. "We live under constant threat," he said. "If we don't conduct such operations we will only sustain further attacks."

Gun battles erupted later in the southern Gaza town of Rafah between rival Hamas and Fatah gunmen, in the worst internal fighting since a mid-May truce. Both groups streamed hundreds of fighters into the streets, witnesses said.

Hospital officials said a local Hamas commander was killed and 14 other gunmen and civilians were wounded in fighting that was so intense ambulances had trouble reaching the wounded. (Additional reporting by Adam Entous)

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