The AIDAdiva was leaving the Israeli port of Ashdod, around 30 kilometres from the Gaza strip, when passengers witnessed explosions in the air above them around 8.30pm local time.
A video, apparently taken with a phone by a passenger, showed lights in the sky. The sound of alarm sirens could also be heard.
According to broadcaster NDR, the incident occurred when Israel's military intercepted missiles launched from inside the nearby Gaza Strip by Hamas, a Palestinian Islamist organization.
Relatives who had talked to family members on board the AIDAdiva took to the company's Facebook page.
"Just received word from my dad, who is on the AIDAdiva at the moment, everything is alright," one man wrote.
Other postings were critical, however, and chided AIDA Cruises, which operates the cruise ship, for taking unnecessary risks.
The Rostock-based firm said in a statement that nobody was hurt and no damage was done to the ship.
"Small particles were however found on the passenger deck which, based on first assessments by experts, could be from air-defence missiles," the cruise line said in a statement.
"We regret that the guests of AIDAdiva witnessed this incident. We assure all our guests that the security of our passengers and crew always has the highest priority for AIDA cruises," a spokesman said.
The German Foreign Ministry updated its travel advisory on Tuesday, warning tourists to avoid a 40km radius around the Gaza Strip.
"In addition we recommend finding information on the location bomb-proof shelters and procedures in case of an air attack," the ministry's website said.
The Israeli military confirmed on Tuesday that it launched had an offensive against Hamas. As part of "Operation Protective Edge," the Israeli air force attacked dozens of targets in Gaza.
A spokesman for the Israeli military said on Tuesday that Hamas had fired more than 100 rockets on Israeli civilians since the night before.
Violence erupted again in the region after three Israeli teenagers were found dead and a Palestinian teenager was killed in an apparent revenge attack.
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