Militants fired the rocket at Israeli territory, but it hit a residential building in Beit Lahya killing two sisters, aged five and 12, the radio said.
In the last week Palestinian factions have sharply increased the number of rocket and mortar barrages at Israeli towns near the border with the Gaza Strip after refusing to extend a six-month ceasefire in Gaza a week ago.
The Israeli army said on Friday a total of 10 mortar shells and three rockets fired from Gaza hit southern Israel during the day.
On Wednesday, Palestinian militants fired over 40 rockets and 20 mortar shells at southern Israeli border towns in the largest daily attack since the end of the truce.
Citing military sources, the country's leading papers reported on Thursday that Israel was preparing a military response to Palestinian rocket attacks in Gaza.
The sources were quoted as saying Israeli forces would enter Gaza "to put pressure on the terror organizations" as soon as the weather improved and the Air Force could carry out precision airstrikes.