Witnesses in Sheikh Zuwaid said they saw two military planes fly over the area and heard explosions on Wednesday morning. Other people near the town said they saw three cars bombed.
Troops entered the village of al-Toumah, 20 km (15 miles) further south, after the army received information that Islamist militants were staying there, military commanders in Sinai told Reuters.
"We have succeeded in entering al-Toumah village, killed 20 terrorists and destroyed three armored cars belonging to terrorists. Operations are still ongoing," he said by telephone.