Israel has declared a state of emergency in the city of Lod following rioting there, as conflict between Israeli forces and Palestinian militants continued to escalate.
Cars were set alight and several people were reportedly injured in clashes that the mayor of the city, near Tel Aviv, likened to a civil war.
Demonstrations by Israeli Arabs broke out and escalated to rioting, with protesters clashing with police on Tuesday night.
It comes after Palestinian militants fired 130 missiles at Tel Aviv following an Israeli air strike on a tower block in the Gaza Strip.
Calls for calm have come from all over the world following the escalation, which follows days of unrest in Jerusalem.
Israeli Prime Minister Benjamin Netanyahu declared a state of emergency in Lod on Tuesday night and Israeli border police were brought in from the West Bank.
The demonstrations followed the funeral of an Israeli Arab man who was allegedly shot by a Jewish resident the night before.
Police fired tear gas and stun grenades after mourners threw rocks at officers, it was reported.
Police said people set fire to a patrol car, a bus and a motorcycle. At least two police officers were injured.
Israeli media reported that synagogues and several businesses had been set on fire, while news agencies said there had been reports of Jews stoning a car that was being driven by an Arab resident.
Mr Netanyahu had earlier warned that the fighting would continue for some time.
In a nationally televised speech late on Tuesday, he said Hamas and Islamic Jihad "have paid, and will pay, a heavy price".
He added: "This campaign will take time, with determination, unity and strength."
Hamas, which controls Gaza, said it has been acting to defend Jerusalem's al-Aqsa mosque from Israeli "aggression and terrorism”.
The site, holy to Muslims and Jews, saw clashes between Israeli police and Palestinians on Monday that left hundreds injured.
The current violence, like previous rounds, including the last uprising, has been fuelled by conflicting claims over Jerusalem, which is at the emotional core of the long conflict.
In a sign of widening unrest, hundreds of residents of Arab communities across Israel staged overnight demonstrations denouncing the recent actions of Israeli security forces against Palestinians.
It was one of the largest protests by Palestinian citizens in Israel in recent years.
Israel and Hamas have fought three wars and numerous skirmishes since the militant group seized control of Gaza in 2007.