The Wednesday attack in the northern Gaza Strip town of Beit Hanoun was followed by angry denunciations from the ruling Palestinian Hamas party, saying that Israel must "cease to exist."
"After this barbaric operation, Israel proved that it's not a humane state," Hamas government spokesman Ghazi Hamad said. "It's a state that believes in killing, and therefore this state should cease to exist."
"I saw people coming out of the house, bleeding and screaming. I carried out a young girl covered with blood," said 35-year-old Rahwi Hamad, a witness to the strike. "We saw legs, hands, parts of heads stuck to the wall. There was a smell of blood and the stench of burnt bodies."
A young man, standing in the bloodied alleyway, said an infant girl had been blown to pieces. "I tried to look for her head, I tried to look for her head," he shrieked, then sank to the ground, weeping.
Weeping relatives gathered outside the homes. One man dipped his hand in victims' blood and smeared it all over his face. "God avenge us, God avenge us," he wailed.
Khaled Radi, a health ministry official, said all the dead belonged to the al-Athamna family. About 60 people were wounded, including 26 children, the ministry said.
Both Defense Minister Amir Peretz and Prime Minister Ehud Olmert expressed regret at the loss of civilian life and offered humanitarian and medical assistance to the Palestinian Authority.
The Israeli army said it had fired artillery at suspected rocket launching sites early Wednesday, but the targets were far from the apartment compound.
Maj. Gen. Yoav Galant, head of Israel's southern command, told Channel 2 TV that the initial investigation showed that the target was about 500 yards from the apartment buildings.
"Our estimate is that it was something connected with the aiming devices, or the alignment, or the balance between them, or our radar's location of the shell hit... Our investigation is concentrating on these points," he said.
Israel's weeklong offensive in northern Gaza, which continued despite forces withdrawing from the area on Tuesday, has killed at least 60 Palestinians, most of them militants.
Hamas chief, Khaled Mashaal, said hours after the attack that Palestinian militants had abandoned their truce with Israel and would resume attacks on the Jewish state.
Meanwhile, Hamas' military wing changed its longtime focus on Israel as the sole target of attacks against perceived enemies of the Palestinian people, calling on Muslim supporters worldwide to wage attacks against American targets in retaliation for the United States' support of the Jewish state.
"America is offering political, financial and logistic cover for the Zionist occupation crimes, and it is responsible for the Beit Hanoun massacre. Therefore, the people and the nation all over the globe are required to teach the American enemy tough lessons," Hamas said in a statement sent to The Associated Press.
While critical of the United States, Hamas has always focused its violent campaign of suicide bombings and rocket attacks against Israeli targets. Wednesday's threat signaled that the group is identifying with global Islamic extremist movements, such as al Qaeda.
Hamas' political wing, led by Prime Minister Ismail Haniyeh, claims it is independent of the military wing. But the two entities both report to the group's secretive leadership, headquartered in Syria, and frequently coordinate with each other.
Hamad said the group had no intention of attacking American targets.
"Our battle is against the occupation on the Palestinian land. We have no interest to transfer the battle," he said, though he said America was indirectly responsible for Wednesday's bloodshed because of its support for Israel.
"We urge the Arab nation and the governments of the Arab countries to protest the world's silence and the American bias," he said.
The United States, like Israel, considers Hamas a terrorist group.
CBS News correspondent Robert Berger says the attack came after Palestinian rockets hit the major Israeli city of Ashkelon, though Israel said it does not deliberately target civilians.
"The Israeli operation throughout the Gaza Strip will continue as long as Qassam rockets land in Israel, as long as the smuggling of weapons into the Gaza Strip continues, as long as the Hamas government chooses for the Palestinians in the Gaza Strip to continuously provoke Israel," Eisin said.
The European Union's Executive Office called the Wednesday strike "profoundly shocking."
"The killing this morning of so many civilians in Gaza, including many children, is a profoundly shocking event," said E.U. External relations Commissioner Benita Ferrero-Waldner.
"Israel has a right to defend itself, but not at the price of the lives of the innocent," she said in a written statement.