Correction Appended

JERUSALEM, July 17 - Israel and the Palestinians faced the possibility of a major confrontation on Sunday as Israel massed tanks and other armored vehicles just outside the borders of the Gaza Strip.

Prime Minister Ariel Sharon told his cabinet ministers that after the recent violence, including a Palestinian bombing and several Israeli airstrikes, there would be "no restriction on our activities to halt the attacks at communities both inside and outside the Gaza Strip."

In renewed fighting in Gaza on Sunday, Israeli forces fatally shot two Palestinian militants, and several more Palestinians were wounded in a series of incidents, the Israeli military said.

An Israeli soldier killed Said Sayem, 31, a local Hamas leader in the southern town of Khan Yunis, with a single gunshot to the neck. Mr. Sayem was just outside his house at the time, and Palestinians in the town and the Israeli news media described it as a sniper shooting carried out by a soldier posted in a nearby Jewish settlement. Israel's military said Mr. Sayem had been involved in numerous attacks.