The dead included a son of Mahmoud Zahar, senior leader of the militant Islamist Hamas group in Gaza, and 48 others were injured, said Hamas sources.

The raid began when an Israeli undercover army unit targeted a house in the Zeitoun area, used to launch rockets at Israel.

Israeli fire have killed more than 100 Palestinians in Gaza since Israel and the Palestinian Authority formally relaunched peace talks in late last November.

"This is one of the results of the Bush visit. He encouraged the Israelis to kill our people," said Mr Zahar as he viewed the body of his son Hussam in a Gaza hospital. Another one of his sons was killed in an Israeli assassination attempt against Mr Zahar in 2004.

He vowed Hamas would respond "in the appropriate way". "We will defend ourselves by all means," he said.

Hours after the Gaza City raid, Hamas claimed to have fired 17 mortars at two small border crossings with Israel and three rockets at the Israeli town of Sderot.