JERUSALEM -

A Palestinian rocket exploded Monday next to a day care center crowded with toddlers in southern Israel, sparking anger and panic in the frequently targeted town of Sderot and bringing warnings of retribution from Israeli leaders.

No one was hurt, but the blast and the panic underlined Israel's ineffectiveness in the face of the primitive rockets, which fall daily despite frequent Israeli airstrikes and occasional ground offensives.

Terrified mothers rushed to comfort their screaming babies, schoolchildren ran for cover, and angry parents said they wouldn't send their children back to school until they get classrooms outside town.

Prime Minister Ehud Olmert pledged to provide "better security for the residents," indicating he would step up the Israeli offensive against Palestinian militants.

"We will not limit ourselves in regards to targeting the rocket launchers and those who dispatch them," Olmert said at a news conference in Jerusalem. "The instruction given to the army is to destroy every 'Qassam' rocket launcher and anyone who is involved in their launching against the residents of Israel."

Islamic Jihad claimed responsibility for launching seven rockets at Sderot. Hamas, the larger Islamic group that rules Gaza, was bracing for retaliation.

"We are taking this new threat by Olmert seriously," Hamas spokesman Taher Nunu said. "We are warning of coming massacres against the people in Gaza."

Hamas overran Gaza in June, vanquishing forces loyal to moderate President Mahmoud Abbas' Fatah. Hamas, which does not recognize Israel and has sent dozens of suicide bombers into the Jewish state, has made no effort to stop the rocket barrages, instead joining in with its own rocket squads.

Sderot, a working-class town of 22,000, has been battered by thousands of the crude projectiles launched in recent years from the Gaza Strip, just a mile away. The unguided rockets rarely cause serious injuries or damage, but they sow panic.

On Monday, rockets exploded near several schools in town, just a day after the school year began. Images of students ducking into shelters, young schoolchildren wailing uncontrollably, and teachers shielding terrified toddlers with their own bodies outraged parents.

Batya Katar, head of the Sderot Parents Association, said parents were pulling all 2,500 of the town's students out of school.

"Buses are already on the way to pick up students who haven't been taken home," she told The Associated Press by telephone, the voices of panicked parents clearly audible in the background.

"Of course I'll take them out. Should I leave them in the hands of Hamas?" Nahum Bitton said as he arrived to fetch his children.

The Education Ministry announced that studies would continue, but Katar said parents would not allow their children to return to school until the government moved them to classrooms out of rocket range.

"The school year is over. We can't hold on any more," Katar said.

Mayor Eli Moyal has long called for a full scale ground invasion of Gaza to root out the rocket launchers. On Monday, he got some support from Tzachi Hanegbi, chairman of parliament's powerful Defense and Foreign Affairs Committee, who said Israel had to seriously consider the option.

"At some stage, decided by Israel, there will be no choice but to wage a campaign in the Gaza Strip," he told Army Radio.

Foreign Minister Tzipi Livni hinted that Israel might impose unspecified sanctions if the Palestinians continue to target southern Israel.

"The Gaza Strip depends on Israel's good will in several things," Livni said, "and I think it's time we will discuss what kinds of means and steps we can take."