An Israeli missile fell on Egyptian territory near a house in the border town of Rafah on Monday but it did not explode, police sources said.
The missile landed in the Brazil district of the town, about 200 metres (yards) inside Egypt, during an Israeli air raid on the border strip between Egypt and Gaza, where the Israelis are targeting tunnels used for food and humanitarian needs into the city under blockade and heavy bombardement.
Police have cordoned off the area and called bomb disposal experts to deal with the missile, the sources added.
It is the first complete Israeli munition known to have fallen on Egyptian territory during 17 days of Israeli attacks on Gaza, although flares and shrapnel have landed in Egypt.
Shrapnel from Israeli bombs injured two Egyptian children and two police officers a day earlier.
The Israeli ambassador said the bombing was meant to hit a military target, the Egyptian foreign ministry said.
Israeli warplanes have been flying over Egyptian territory during their bombing runs on the tunnels, witnesses say.
Palestinians used to tunnels to resist blockade which Israel has imposed during few months, including to prevent electricity, food, medical equipment.
Israel has attacked hospitals, government buildings, schools and destroyed systems in Gaza.