An Iranian missile struck the southern Israeli town of Dimona, home to the country's nuclear research facility, on Saturday.
Medics said at least 39 people were injured by shrapnel.
The Israeli military told AFP there was a "direct missile hit on a building" in the town in the Negev desert.
Dimona hosts a facility just outside the main town, widely believed to possess the Middle East's sole, if undeclared, nuclear arsenal.
Iranian state TV said the attack was a "response" to an earlier strike on Natanz by US-Israeli forces.
Magen David Adom first responders said their teams treated 39 people at a number of impact sites, including a 10-year-old boy in serious condition who was "fully conscious".
The organisation, Israel's equivalent of the Red Cross, released a video of a residential building ablaze in the town.
"There was extensive damage and chaos at the scene," paramedic Karmel Cohen said in a statement.
Israel has maintained a policy of ambiguity about its nuclear programme, and the Dimona plant officially focuses on research.
Images shared by Israeli media showed an object hurtling out of the sky at high speed before crashing into the town.
Following the Natanz attack, UN nuclear watchdog chief, Rafael Grossi, had repeated a "call for military restraint to avoid any risk of a nuclear accident".
The Natanz facility hosts underground centrifuges to enrich uranium for Iran's disputed nuclear programme and was already damaged in last year's June war.
The Israeli military denied knowledge of an attack on Natanz. Hormuz base Three weeks of heavy US-Israeli bombardment appear to have done little to blunt Iran's ability to retaliate with missile and drone attacks across the region.
The United Arab Emirates said Saturday it faced aerial attacks after Iran warned it against allowing attacks from its territory on disputed islands near the strategic Strait of Hormuz.
Iran has choked off the vital waterway, which is used for a fifth of global crude trade during peacetime.
Admiral Brad Cooper, head of US Central Command, said US warplanes had dropped 5,000-pound bombs on an underground facility on Iran's coast that was storing anti-ship cruise missiles, mobile launchers and other equipment, leaving Iran's ability to threaten the waterway "degraded".
"We not only took out the facility, but also destroyed intelligence support sites and missile radar relays that were used to monitor ship movements," Cooper said in a video statement, revealing details of a strike first announced on Tuesday.
A statement from the leaders of mainly European countries, including the UK, France, Italy and Germany, but also South Korea, Australia, the UAE and Bahrain, meanwhile condemned the "de facto closure of the Strait of Hormuz by Iranian forces".
"We express our readiness to contribute to appropriate efforts to ensure safe passage through the Strait," they said.
US President Donald Trump has slammed NATO allies as "cowards" and urged them to secure the strait.
Foreign Minister Abbas Araghchi said Tehran had only imposed restrictions on vessels from countries involved in attacks against Iran, and would offer assistance to others that stayed out of the conflict.
The standoff in the strait has sent crude oil prices soaring, with a barrel of North Sea Brent crude up more than 50 percent over the past month and now comfortably more than $105. Remarkable endurance? Analysts say Iran's Islamic government has survived the loss of its top leaders and that its strike capacity is proving more durable than expected.
"They're showing a lot of resilience that we didn't perhaps expect, that the US didn't expect, when it took this on," Neil Quilliam of Chatham House told the London-based think tank's podcast, adding the Islamic republic had deep roots.
Tehran, meanwhile, marked the end of Ramadan as the war was entering its fourth week.
Iran's supreme leader traditionally leads Eid al-Fitr prayers, but Mojtaba Khamenei, who came to power earlier this month after his father Ali Khamenei was killed, has remained out of the public eye.
Instead, the head of the judiciary, Gholam Hossein Mohseni Ejei, attended prayers at central Tehran's overflowing Imam Khomeini grand mosque.
"The atmosphere of the New Year was spreading through the city," said Farid, an advertising executive reached by AFP through an online message.
But "the thought that some people could be dying right at the New Year dinner table was painful", he added.
Shiva, a 31-year-old painter, told AFP that the "only common feeling these days is uncertainty".
"The only night we felt genuinely happy was the night Ali Khamenei was reportedly killed," she said. (AFP and TNA staff)