Approximately 80 rockets and mortars shells had been fired at areas surrounding the Gaza Strip during the brief conflict, according to Reuters.
The exact terms and duration of the cease fire remain unknown, according to BBC’s Jon Donnison in Gaza City reports.
Five people have been injured in Israel, since rocket attacks began on Monday.
Israel retaliated with air strikes on Gaza City, killing at least four militants.
Schools were closed on both sides of the border for fear of more attacks.
Earlier this week, Prime Minister Benjamin Netanyahu promised to continue “targeted attacks” on militants launching rockets into Israel.
“We didn’t ask for this escalation and didn’t initiate it,” he said. “But if it continues, we are prepared to embark on a far more extensive and penetrating operation.”
Earlier on Wednesday, Prime Minister Benjamin Netanyahu vowed to ensure that every community within seven kilometers of the Gaza Strip was properly protected against rocket fire.
On Wednesday, more than 70 rockets were launched into southern Israel, injuring five people, two critically, according to the Israeli military.
In response, Israeli aircraft and tanks targeted rocket launching sites in northern Gaza.
Hamas’s military wing, the Izz al-Din Qassam Brigades, confirmed it had been involved in firing dozens of rockets and mortars into Israel.
In a statement, the Izz al-Din Qassam Brigades and a smaller Gaza-based militant group, the Popular Resistance Committees (PRC), said: “These holy missions come in response to the repeated, continuous crimes of the enemy against our people.”
Three foreign workers were wounded in the violence on Wednesday, when the chicken coop where they were working was struck by a mortar shell. Also, damage was done to eight houses in Eshkol and the Ashkelon coast, some of which after taking direct hits.
The Israel Defense Forces responded with tank fire and aerial assaults of targets in the Gaza Strip, killing four Palestinians and wounding at least eight. Over the course of the day, the IDF struck eight times, four by the Israeli Air Force.
The violence comes as the EU’s foreign policy chief, Catherine Ashton, visits the region to try to revive the stalled Middle East peace process.
She was scheduled to meet Israeli President Shimon Peres and Mr Netanyahu. Her talks with Defence Minister Ehud Barak were cancelled on Wednesday so he could tour the border with Gaza.
On Thursday, Baroness Ashton will meet Palestinian Authority President Mahmoud Abbas and his Prime Minister, Salam Fayyad.
“This is a critical time for the wider Middle East,” she said.
Hamas, which governs Gaza, is not even part of the peace process, which has seen little US engagement since direct negotiations collapsed two years ago, reports our correspondent.
Though the Israeli government made no official confirmation of the report, the truce is believed to have been negotiated by Egyptian intelligence officer Maj. Gen. Nader al-Aasr, and it would see the IDF halt its retaliatory strikes into the Gaza Strip if Hamas stops rockets from being fired into Israel, reports Israel Radio.
Sources in the Israeli government reported that the Hamas leadership forwarded messages to Jerusalem through Egyptian intermediaries requesting a ceasefire, Israel Radio reported. The sources in Jerusalem believed that Hamas lacked the will to be dragged into a prolonged conflict with Israel, and that Israel inflicted serious damage to the group in airstrikes in the past day.
“An Egyptian-mediated truce is something that repeats itself because of their interest in regional tranquility,” the security source told intimated to Channel 10.
“Hamas and the [Islamist] factions [in the Gaza Strip] are interested in silence, we estimate, on account of Eid al-Adha in the coming days. A mutual interest has been created in which both we and they are interested in quiet,” the source said, referring to the major Muslim holiday.