"The discovery of the tunnel ... Prevented attempts to harm Israeli civilians who live close to the border and military forces in the area," Israeli Defence Minister Moshe Yaalon said in a statement, accusing Gaza's ruling Hamas Islamist movement of being behind construction of the tunnel.
The Israel Defence Forces (IDF) said it recently uncovered a Palestinian terrorist tunnel leading from the Gaza Strip to Kibbutz Ein Hashlosha.
The tunnel was over 1.7 kilometers in length and represents a grave attempt by Palestinian terrorists to perpetrate an attack, army sources added.
The entrance of the tunnel on the Israeli side was reportedly dug near a kindergarten.
There was no claim of responsibility in Gaza but a spokesman for Hamas's armed wing wrote on Twitter that "the determination deep in the hearts and minds of resistance fighters is more important than tunnels dug in the mud".
Explosives found inside the tunnel had since been made safe, the army said. A spokesman told the BBC the tunnel was some 15-18m deep and would have taken at least one month to dig.
Defense Minister Yaalon announced that he was immediately halting the transfer of building material to the Gaza Strip. Restrictions on the private sector were lifted last month. Egypt and Israel imposed a blockade on Gaza when Hamas took power in 2007.
Israeli Prime Minister Binyamin Netanyahu praised the IDF for unearthing the tunnel, his spokesman said.
The radio station cited Haim Yalin, head of the Eskol Regional Council, as commending the army's discovery, saying it prevented disaster.
"This tunnel, which looks like the New York subway, is apparently intended to kidnap soldiers or for some other kind of terrorist attack," Haim Yelin told army radio.
"It is impressively executed, with concrete supports."
Tunnels have been used before to launch attacks from Gaza. In 2006, Palestinian militants seized Israeli soldier Gilad Shalit who was kept in captivity in Gaza for more than five years.
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