That part of the world is prone to this type of event. It has been conjectured that the Mycenaen civilization was wiped out by a tsunami and the volcanic event at Thera (modern day Santorini) probably caused severe flood damage to nearby civilizations. Of course, both of these events occured well after the Etna incident you describe, and were well into the Bronze Age.

I've recently re-read Plato's dialogues "Timaeus" and "Critias", the only ancient account and certainly the origin of the Atlantis myth. The Atlantis event was set over eleven thousand years ago, and it is clear from the text that not even Plato's intended readerership was expected to take it very seriously: it was a metaphorical place. But the Iron Age Greeks must have had some knowledge of the seismic history of their area, and probably had inherited an oral tradition of other events.