Israel's Iron Dome short-range missile defence system shot down a rocket fired from the Gaza Strip on Thursday, the first time such an interceptor has been deployed anywhere.

The military confirmed the rocket had been brought down over the southern city of Ashkelon by the unique multi-million-dollar system, which came into operation on March 27, the first time that Iron Dome had hit a rocket in actual combat.

Prime Minister Benjamin Netanyahu said the system gave Israel hope that the Jewish state could now better defend it's citizens from the thousands of rockets that have been fired into Israel in recent years.

"It gives hope that over time we can develop some better defence for civilians that are targeted by regimes ... deliberately targeting the innocent," said Netanyahu, who was visiting the Czech Republic.

As the rocket came in from Gaza, the interceptor missile streaked into the sky to hit it with the two trails converging in an explosion, said the AFP correspondent.

"Israel air defences using the Iron Dome system earlier this evening intercepted a rocket fired at the Israeli home front. Immediately afterwards aircraft identified the cell that fired the rocket and attacked them, identifying a hit," an army spokeswoman said.

It was not immediately clear what kind of rocket it was.

The rocket fire came after Palestinian militants in Gaza fired an anti-tank rocket at an Israeli school bus, critically wounding a teenager. Later militants fired dozens of mortar rounds and rockets into Israel.

Israel responded with air strikes and tank fire, killing four Palestinian and wounding more than 30.

The first Iron Dome battery was deployed outside Beersheva, just days after the southern desert city was hit by several Grad rockets fired from Gaza.

Ashkelon, which has a population of some 113,000, has also recently come under attack from Grads, which have a range of up to 50 kilometres (30 miles).

The defence system, the first of its kind in the world and still at the experimental stage, is not yet able to provide complete protection against the hundreds of rockets fired from Gaza into southern Israel, officials have said.

"We have deployed them in the last two weeks without actually testing them in laboratory conditions... (and) they have so far worked very well," Netanyahu said.

Israel plans to raise to six the number batteries in operation over the next two years.

The system, developed by Israel's Rafael Advanced Defence Systems with the help of US funding, is designed to intercept rockets and artillery shells fired from a range of between four and 70 kilometres (2.5 and 43 miles).

Over the past five years, militants in Gaza and in south Lebanon have fired thousands of projectiles at the Jewish state, and Israel is planning to deploy the system along both borders.

Iron Dome will join the Arrow long-range ballistic missile defence system in an ambitious multi-layered programme to protect cities from rockets and missiles fired from Lebanon or Gaza, Syria or Iran.

A third system, known as David's Sling, is currently under development with the aim of countering medium-range missiles.