Palestinian militant group Islamic Jihad said it was holding fire from the Gaza Strip on Thursday after Israel agreed to an Egyptian-mediated truce, in a possible end to the worst surge in fighting in months.

The truce was in force from 0330 GMT, the group's spokesman, Musab Al-Braim, said, marking about 48 hours since Israel sparked the exchange of fire by killing the faction's top Gaza commander in an airstrike, deeming him an imminent threat.

A total of 32 Palestinians, at least a third of them civilians, have been killed, while hundreds of rocket launches by militants paralysed much of southern Israel. Hamas, Gaza's dominant faction, stayed out of the current fighting.

An Egyptian official contacted by Reuters confirmed a truce deal had been reached.

There was no immediate confirmation from Israel. Its officials had previously set simple quid-pro-quo terms for restoring quiet in Gaza, saying that if Islamic Jihad fighters ceased fire, Israel would follow suit.

Al-Braim said Israel had accepted Islamic Jihad's demand that it stop both the targeted killing of militants and lethal army gunfire at weekly Palestinian protests on the Gaza border.

"The ceasefire began under Egyptian sponsorship after the Occupation (Israel) submitted to the conditions set by Islamic Jihad on behalf of Palestinian resistance factions," Braim told Reuters.

Apart from a lone rocket launch witnessed by a Reuters correspondent, Gaza appeared to have fallen mostly silent at the hour cited by Islamic Jihad, with the quiet holding past sunrise.

Earlier on Thursday, an Israeli missile strike killed six members of a Palestinian family and wounded 12 people, all of them civilians, medical officials and residents said.

A spokesman for the Israeli military said it was investigating the incident, which happened as it carried out airstrikes to suppress continued rocket salvoes from Gaza.