Unidentified gunmen have attacked a checkpoint on the Egyptian-Israeli border, killing at least 15 Egyptian policemen, officials say.
Israel said the heavily armed attackers, in two vehicles, then tried to smash their way across the border.
One vehicle apparently blew up at the North Sinai crossing, while the other was destroyed by the Israeli air force.
It is not clear who carried out the raid. Egyptian state television blamed Islamist militants.
The country's state news agency quoted a top security official who said the gunmen were "jihadists" who had infiltrated from the Gaza Strip.
Israel's defence minister Ehud Barak said his country's security forces had "thwarted an attack that could have injured many".
"The militants' attack methods again raise the need for determined Egyptian action to enforce security and prevent terror in the Sinai," he said in a statement.
Egypt's President Mohammed Mursi held an emergency meeting with military and security officials after the attack.
He condemned what he called a "cowardly" attack and said Egpyt would retake control of the Sinai.
"The [security] forces will take full control of these regions," the president said in a televised address.
Analysts say the security situation in the area has deteriorated following the fall of Hosni Mubarak last year.
In an earlier statement, he urged the authorities to take measures to "confront this serious challenge to Egyptian sovereignty and to protect Sinai from all armed groups".
At least seven other Egyptian policemen were wounded in the attack, security officials said. It is unclear how many militants were involved or how many were killed.
Egyptian and Israeli forces say they are searching for any other gunmen who may have escaped. Israeli civilians in the area have been told to stay inside their homes.
The Rafah border crossing with the Gaza Strip has shut indefinitely, Egyptian state television says.
The attack on the border post close to Gaza and Israel took place around sunset, just as the guards had stopped work for the traditional iftar meal, which breaks the daily fast during the Islamic holy month of Ramadan.
Masked gunmen dressed as bedouin opened fire on police with guns and rocket-propelled grenades before driving off with an armoured vehicle, Egyptian state television said.
In Israel a military spokeswoman said two vehicles had been taken at its Kerem Shalom crossing.
The BBC's Yolande Knell in Cairo says the attack will be seen as more worrying evidence that Islamist militants have a firm foothold in the restive Northern Sinai region.
They have been blamed for several rocket attacks against Israel and a cross-border raid that killed nine Israelis last year.
Recently there have also been repeated attacks on the pipeline that exports gas to Israel and Jordan. Last month two Egyptian soldiers were shot dead.
Egypt's military sent extra tanks and troops into the Sinai last year. The terms had to be agreed with Israel under the terms of the 1979 peace treaty between the two countries, our correspondent says.