The Israeli army says it has discovered a tunnel running 1.7km (1 mile) from the Gaza Strip into Israel.
The tunnel led from a house to a site close to a kibbutz, Ein Hashlosha, and could have been used to carry out attacks on civilians, a spokesman said.
Israel has responded by halting the transfer of all construction materials to Gaza. Restrictions on the private sector were lifted last month.
Gaza’s Hamas rulers accused Israel of “exaggerating things”.
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By talking about the discovery of a tunnel, Israel was “trying to justify the blockade and the continuous aggression on the Gaza Strip,” spokesman Sami Abu Zuhri said.
A spokesman for the military wing of Hamas, al-Qassam Brigades, said on Twitter that “the minds which manage to dig the tunnel can dig dozens more”.
The tunnel was uncovered last Tuesday after kibbutz residents complained of hearing an unusual noise from the border area.
It ran from Absan village near Khan Younis in Gaza under the border fence almost as far as Ein Hashlosha, Israeli media reported.
Explosives found inside the tunnel had since been made safe, the army said. A spokesman told the BBC the tunnel was some 15-18m (50-60ft) deep and would have taken at least one month to dig.
Tunnels have been used before to launch attacks from Gaza. In 2006, Palestinian militants seized Israeli soldier Gilad Shalit who was kept in captivity in Gaza for more than five years.
Israeli PM Benjamin Netanyahu praised the army but warned the “quietest year in over a decade” had been disturbed by recent militant activities.
Maj Gen Eitan Dangot said as a result of the discovery, the export of construction materials to the private sector in Gaza would be suspended.
Israeli human rights group Gisha said 70 lorry loads of building materials for the private sector and 60 loads for humanitarian projects had been due to enter Gaza on Sunday.
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