* Netanyahu: Israel will be "level-headed" in Gaza flare-up
* Israeli city of Beersheba targeted in rocket attack
* Tensions high in Arab towns in Israel over teen's death
* Police say areas calm on Sunday after clashes (Adds comments by Netanyahu, Hamas official)
By Jeffrey Heller
JERUSALEM, July 6 (Reuters) - Israel said its aircraft had attacked 10 sites in the Gaza Strip on Sunday in response to rocket strikes, but Prime Minister Benjamin Netanyahu signalled that broader action in the Palestinian enclave was not imminent.
In remarks to his cabinet on Sunday, Netanyahu pledged "to do whatever is necessary" to restore quiet to southern Israeli communities that have come under rocket attack. But he also cautioned against any rush toward wider confrontation with the Hamas Islamist group, the dominant force in the Gaza Strip.
Tensions were also high in Arab towns and villages in northern Israel and in East Jerusalem, after the kidnap and killing of a 16-year-old Palestinian on Wednesday. An autopsy showed he had been burned alive, the Palestinian attorney-general said.
Israel has arrested some suspects in the case, Israeli media reported on Sunday.
Palestinians believe the teen was the victim of right-wing Jews avenging the abduction and killing of three Israeli teenagers who disappeared while hitchhiking in the occupied West Bank on June 12 and whose bodies were found on Monday.
Police said East Jerusalem and flashpoints in Israel's Arab community in the north were quiet on Sunday after protesters throwing stones and burning tyres clashed with Israeli police late on Saturday.
Palestinian-American Tariq Khdeir, 15, a cousin of the Palestinian teen, was arrested by Israeli border policemen, who his family said beat him severely, during a protest on Thursday in East Jerusalem. The United States has called for an investigation.
An Israeli court on Sunday ordered Khdeir released from jail and placed under house arrest for nine days. His mother said the family planned to return to Tampa, Florida on July 16.
In remarks to his cabinet on Sunday, Netanyahu said: "We are acting firmly against law-breakers and those who incite, no matter which side they are on. Whoever breaks the law will be arrested and severely punished."
Israel beefed up ground forces along the Gaza frontier on Thursday, sending a message to Palestinian militant groups that an invasion was an option if rocket fire did not stop. Egypt, a bordering country, has been trying to mediate a truce.
While Hamas's armed wing is no match for Israel's powerful military, the Palestinian group's arsenal includes long-range rockets that can strike the Israeli heartland, including the business capital of Tel Aviv.
"Experience has shown that during moments like these, one must act in a level-headed and responsible manner and not hastily," Netanyahu told his cabinet, in broadcast remarks.
The military said rocket launchers and a weapons manufacturing facility were among the targets of Sunday's air strikes, which followed the firing of a rocket, intercepted by Israel's Iron Dome system late on Saturday, at the major southern city of Beersheba.
"Following constant rocket fire at Israeli communities in the south, Israeli aircraft targeted 10 terror sites in the central and southern Gaza Strip," the military said in a statement.
There were no immediate reports of casualties from the air strikes.
The Gaza flareup began in mid-June after Israel launched a crackdown in the occupied West Bank on Hamas after blaming the group for the abduction of the three Israeli teenagers. Hamas has neither confirmed nor denied the Israeli allegations.
A Hamas security official, speaking to Reuters in Gaza, said demands for the rocket fire to stop should be directed at the West Bank-based Palestinian unity government formed on June 2, and not at the Islamist group.
He also hinted that internal Palestinian politics were in play, saying tensions in Gaza were being stoked not only by "Israeli aggression" but by the new government's failure to pay salaries to some 40,000 public servants hired by Hamas.
The unity government says those employees, on Hamas's payroll since the group seized the Gaza Strip in 2007 from forces loyal to Western-backed President Mahmoud Abbas, must first be vetted, a process that could take months.
(Additional reporting by Nidal al-Mughrabi in Gaza; Editing by Janet Lawrence)