The Palestinian Interior Ministry in Gaza accused Israel on Friday of a cross-border shooting in violation of a truce that has largely held since getting off to a shaky start on Thursday.
An Israeli military spokeswoman said: "We have no knowledge of such an incident."
The Palestinian ministry in the coastal territory dominated by Hamas Islamists said Israeli troops shot at houses east of the town of Khan Younis.
The cease-fire, renewed on Thursday for five days after a previous truce expired, has largely halted more than a month of fighting in which 1,945 Palestinians, many of them civilians, 64 Israeli soldiers and three civilians in Israel were killed.
The truce got off to a rocky start with Israel launching an air raid early on Thursday in response to rocket fire from Gaza in violation of the earlier truce.
There were no reported casualties in any of these incidents.
The latest cease-fire, mediated by Egypt, gave the parties an additional five days, until late on Monday to come up with a comprehensive agreement to end the war in Gaza.
Negotiations hosted in Cairo were expected to reconvene on Sunday.
Prime Minister Benjamin Netanyahu's security cabinet debated the emerging deal at a meeting held behind closed-doors on Friday, after a protest by 10,000 Israelis in Tel Aviv, angry at the war's inconclusive results and the prospect of facing more rocket fire from Gaza once the truce comes to an end.
An Israeli official said after Friday's meeting that any deal struck in Egypt had to "provide clearly for security arrangements" for Israel. The official, speaking on condition of anonymity, declined to elaborate.
Few precise details of the indirect negotiations have emerged, but the broad outlines are well known: the Palestinians want an end to Israel's blockade of Gaza, an extension of the strip's maritime and security boundaries and the building of a sea port and reopening of an airport in the enclave.
For their part, the Israelis want an end to rocket fire from Gaza, the full demilitarisation of the territory, and for the Palestinian Authority headed by Western-allied President Mahmoud Abbas to take over responsibility for managing Gaza's 12 km (7.5 mile) border with Egypt at Rafah, an effort to prevent the smuggling of weapons and other military-use equipment.