An Israeli soldier and a Palestinian militant have been killed in an exchange of fire on the Gaza border in what was thought to be a kidnap attempt.

The Palestinian man, named as Ahmed Abu Nasser, 22, broke through the border fence, alerting soldiers of the Israeli Defence Forces' (IDF) Golani brigade. In the ensuing gun battle early on Friday morning, both Abu Nasser and Netanel Moshiashvili, 21, were killed.

Following the incident, explosions were reported in and around the Gaza town of Khan Younis. Israeli war planes were reported to have struck a motorcycle, injuring three or four Palestinians. According to a statement from the IDF, Israeli "aircraft targeted a terrorist squad that fired a rocket at IDF soldiers. A hit was confirmed". There were also reports of a number of rockets fired from Gaza into Israel.

An earlier IDF statement said: "An IDF soldier from the Golani brigade was killed earlier this morning. A terrorist who was identified infiltrating Israel from the southern Gaza Strip opened fire at IDF soldiers, who responded with fire. During the exchange of fire, the terrorist was killed, thus preventing a terror attack on Israeli civilians."

Islamic Jihad initially claimed responsibility for the militant operation but later retracted its statement.

The incident was reported to be connected to a bid to kidnap an Israeli soldier, although such an attempt would be expected to involve more than one Palestinian militant.

Militant groups in Gaza have openly stated their intention to try to kidnap an Israeli to use as a fresh bargaining chip to secure the release of Palestinian prisoners. The Israeli soldier Gilad Shalit was released last October after more than five years in captivity in Gaza in exchange for more than 1,000 Palestinian prisoners.

"This is our strategy. It's the only way to force Israel to release prisoners," Abu Tarek Mudalel, an Islamic Jihad leader, told the Guardian earlier this week. The Israeli military is on high alert over kidnap attempts.

In a separate incident last week, two Israeli soldiers were wounded by gunfire along the border.

Friday's incident followed the return of the remains of 91 Palestinians, including many suicide bombers, which had been held by Israel, to the West Bank and Gaza.

Most of the remains were handed over to the Palestinian Authority in Ramallah on Thursday, where the coffins were draped in Palestinian flags and a ceremony was held at the presidential headquarters, the Muqata. Twelve bodies were returned to Gaza.

Israeli officials described the move as a "confidence-building measure" to "help to get the peace process back on track". The bodies had been interred in an Israeli military cemetery for "enemy combatants" in the West Bank.