The Israeli campaign has been limited to airstrikes so far. But military officials say they are considering expanding it to a ground campaign.
Lieutenant Colonel Avital Leibovich, a military spokeswoman, said the military had called 16,000 reservists to duty today as it geared up for a possible ground offensive.
She said the army had authority to draft an additional 14,000 soldiers. She would not say where the troops were deployed.
As air-raid sirens went off in Jerusalem, witnesses said they saw a stream of smoke in the suburbs.
Israeli police spokesman Micky Rosenfeld said the rocket landed in an open area near Gush Ezion, a group of Jewish settlements in the West Bank.
An attack on Israel's self-declared capital marks a major escalation by Gaza militants, both for its symbolism and its distance from the Palestinian territory. Located roughly 50 miles away from the Gaza border, Jerusalem had been thought to be beyond the range of Gaza rocket squads.
Abu Obeida, spokesman for the Hamas militant wing, said the group had fired a long-range rocket at Jerusalem.
"We are sending a short and simple message: There is no security for any Zionist on any single inch of Palestine and we plan more surprises," he said. Hamas officials said the rocket was a homemade M-75 rocket, a weapon that has never been fired before.
It also marks a gamble for the militants. Gush Ezion is close to the Palestinian city of Bethlehem and near the revered Al Aqsa Mosque in Jerusalem's Old City, one of Islam's holiest sites.
Hundreds of thousands of Palestinians live in Jerusalem and nearby areas of the West Bank.
Militants have already fired rockets into the southern outskirts of Tel Aviv, another unprecedented move yesterday. The rocket attacks have not hurt anyone, but have caused panic and jitters.
Just a few years ago, Palestinian rockets were limited to crude, homemade devices manufactured in Gaza. But Hamas and other groups have smuggled in sophisticated, longer-range rockets from Iran and Libya, which has been flush with weapons since Muammar Gaddafi was ousted last year.
Most of the rockets do not have guided systems, limiting their accuracy, though Israeli officials believe the militants may have a small number of guided missiles that have not yet been deployed.
The strike occurred on the third day of an Israeli offensive in Gaza meant to halt rocket fire from the crowded seaside strip.
Israel began the offensive on Wednesday by assassinating Hamas' military chief and striking dozens of rocket launchers. But militants have continued to rain rockets across Israel.
The military spokeswoman said no decision has been made on whether to send ground troops or how long the Israeli offensive will last. Lt Col Leibovich said all options are open, "including a ground operation".
Along the border yesterday, tanks, armoured vehicles and military bulldozers were parked in neat rows.
Soldiers milled about, while buses filled with soldiers moved in the area.
Hamas militants have vowed to resist the Israeli offensive. They received a boost yesterday with a visit by Egypt's prime minister, Hesham Kandil, who called on Israel to end its operation.
In all, 23 Palestinians have been killed, including 11 civilians, according to Gaza health officials, and 250 people wounded.
Three Israelis were killed when a rocket hit an apartment building in southern Israel.