Three Palestinians have been killed and 10 wounded in clashes in southern Gaza between rival Hamas and Fatah gunmen.
An economic squeeze on the Palestinian government is raising tensions
The confrontations began with a spate of kidnappings on both sides in the early hours of Monday, reports said.
Though the hostages were quickly released, tensions later spilled over in a gunfight at daybreak near the southern Gaza town of Khan Younis.
Intense rivalries have been building between the two factions since Hamas defeated Fatah in elections in January.
There are conflicting reports about the precise details and sequence of events on Monday morning.
Our correspondent in Gaza, Alan Johnston, quotes Hamas sources as saying that three members of its armed wing were kidnapped by Fatah gunmen in the early hours, followed soon after by the kidnap of four Fatah people by Hamas militants.
Mediation efforts resulted in the quick release of the men, he says, but soon after in another area of the city a Hamas man was killed on his way to a mosque.
This seems to have triggered a clash between Hamas gunmen and a branch of the security services closely associated with Fatah, in which a police officer was killed.
Where the third death occurred is not clear in this account.
However, a report by the Associated Press news agency - this time quoting Fatah sources - say Hamas initially tried to kidnap a Fatah member, prompting a gunfight and then the series of tit-for-tat kidnappings.
The report says a Hamas gunman died in the gunfight. In later clashes, Hamas militants are said to have ambushed Fatah militants driving in two off-road vehicles, hitting one with a shoulder-held missile and killing the two passengers from Hamas.
This is the most serious internal Palestinian violence since Hamas defeated Fatah in January's elections and formed a government.
Hamas is in power, but Palestinian President Mahmoud Abbas, of Fatah, retains official control over the Palestinian security services.
There are reports that both Hamas and Fatah have stepped up military training for their respective gunmen.
Meanwhile, talks over the weekend between Mr Abbas and Prime Minister Ismail Haniya of Hamas failed to reach any resolution.
Both Fatah and Hamas are reported to be stepping up military training
Tensions have been rising amid an economic squeeze on Palestinians, after the United States and European Union cut off financial aid to the Hamas-led Palestinian Authority.
The aid embargo, combined with Israel's refusal to hand over some $55m in monthly tax revenues it collects on behalf of the Palestinian Authority, have made it impossible for the Hamas government to pay its 165,000 employees.
Over the weekend, AP reports that hundreds of Palestinians staged strikes and demonstrations in Gaza and the West Bank to demand payment of the salaries.
The agency noted that while the unrest was not widespread, it was significant in that until now Palestinians have largely accepted Hamas assertions that the crisis is the fault of Western hostility.