The strike followed a decision to step up attacks against Islamic militants in response to rocket fire from Gaza. Israeli air attacks on militant targets earlier in the day killed another three Palestinians.
The attack on the house was the deadliest airstrike since Israel started reprisals Tuesday for the rocket barrages.
The house belonged to Hamas lawmaker Khalil al-Haya, who was not at home. He was one of the Hamas representatives in cease-fire talks with Fatah and was attending an Egyptian-sponsored truce meeting just before the strike, residents said.
The missile hit a room used as a meeting place for the extended family, relatives said. Hospital officials said eight people were killed and 13 injured.
All the dead and wounded were relatives and neighbors, al-Haya's wife said. Hamas said two of the dead were militants.
The Israeli military said the missile hit a group of armed militants outside a house.
"We will go ahead despite the challenges, despite the martyrs, despite the pain that I am suffering and my people are suffering," he told reporters at the hospital, in remarks carried by local radio stations.
Fawzi Barhoum, a Hamas spokesman, said those killed were civilian members of the al-Haya family, and the attack was a sign that Israel is targeting "everyone — civilians and leaders."
"This escalation is very serious," he said. "All options are open" for responding to this. A Hamas statement called for its military wing to "respond with all means to these crimes."
Three people, including at least one Hamas militant, were killed earlier Sunday in an airstrike on a car in Gaza City. In another airstrike, Israel said it targeted an Islamic Jihad weapons workshop in northern Gaza, but the shop owner said his stereo and video store was apparently hit by mistake.
Later in the day, an Israeli shell exploded in northern Gaza, wounding three, Palestinian security officials said. The military had no comment.
Israeli aircraft struck twice in Gaza City early Monday, killing a Hamas militant. The military said the targets were Hamas and Islamic Jihad weapons factories. Palestinians said one was a cement factory and the other was a house.
In a statement, Palestinian President Mahmoud Abbas called for international pressure to stop the Israeli attacks.
Despite the sixth straight day of strikes, Gaza militants fired at least 12 rockets at southern Israel. Several exploded in the battered town of Sderot, causing damage but no serious injuries. One destroyed a popular Indian restaurant in a nearby village at nightfall.
Israel's Security Cabinet said it had decided to keep up attacks aimed at the two main Islamic militant groups in Gaza, but stopped short of approving a large-scale ground invasion.