Sinai has been demilitarized since Israel returned it to Egypt as part of their 1979 peace deal. For decades it largely remained a quiet oasis and a popular tourist destination for Israelis. But in recent years it has become increasingly lawless and dangerous as rogue groups either inspired by or loosely linked to the al-Qaida global terror network staked out strongholds in the desert.
The Israel-Egypt border has become particularly volatile since the fall of longtime Egyptian ruler Hosni Mubarak in a popular uprising last year, with militants staging multiple attacks on a pipeline delivering gas from Egypt to Israel, frequently lobbing rockets into the Jewish state and sneaking across the border and killing Israelis.
Israel has repeatedly warned Egypt's new authorities of the deteriorating situation and the growing militancy in Sinai.
President Mohammed Morsi and his Muslim Brotherhood movement have said they will abide by the peace accord, a cornerstone of stability for both nations, but have repeatedly called for changes in the limits on troops in Sinai. They contend that those limits infringe upon Egyptian sovereignty.
Since Mubarak was toppled, Israel has made some exceptions to the peace deal, allowing Egypt to send more troops to Sinai to deal with the militant threat. But Israel is wary of allowing a permanent Egyptian military presence on its doorstep, particularly with Islamists at the helm in Cairo.
"Israel is in a bind," said Ronen Cohen, a retired colonel from military intelligence who has dealt closely with the Sinai threat. "There is a deep terrorist infrastructure in Sinai that has to be rooted out, and it is unlikely the Egyptians will do it."
In August, Islamist gunmen brazenly killed 16 Egyptian soldiers before smashing through a fence into Israel. Egypt responded by launching an operation in Sinai, using tanks and troops against the militants.
But Cohen said isolated operations would not eliminate the threat and that a sustained effort was required with Israeli and Egyptian authorities working in tandem.
The most deadly attack to date against Israel came a year ago, when Palestinian militants crossed from Gaza into Sinai, made their way along the Israel-Egypt border, then crossed into Israel and attacked Israeli vehicles, killing eight people. Israeli forces chased the attackers down and killed six Egyptian troops in the process an incident that increased tensions between the two countries.
It's unclear who exactly was behind Friday's attack, and there were different accounts of what actually transpired.
The Israeli military said the three militants were camouflaged with sand-colored clothes and armed with various weapons AK-47 assault rifles, machine guns and rocket-propelled grenades.
Military spokeswoman Lt. Col. Avital Leibovich said the Israeli troops quickly returned fire, killing the three militants. But Egyptian intelligence officials said the three attackers had crossed the border and that one of them blew himself up inside Israel.
Egyptian officials said a team was dispatched to Israel to inspect the bodies of the militants and was looking to take them back to Egypt for further investigation.
Last Sunday, Egyptian police backed by the military arrested suspected militants in a pre-dawn raid in northern Sinai that led to clashes and the death of an Egyptian soldier.
Al-Salafiya al-Jihadiya, one of the several disparate armed Islamist groups operating in northern Sinai, insisted afterward that they did not wish to target the Egyptian military or police forces and were directing their weapons toward Israel alone.
Israel has issued several travel warnings to its citizens against visiting Sinai, based on information alleging that militant groups from the Gaza Strip were operating in the area and planning to attack or kidnap Israeli tourists.