Israeli gunboats shelled suspected rocket launching sites in Gaza, and Palestinian officials said the artillery hit a family picnicking on the beach, killing six people, including three children.
The army said it was shelling areas where rockets had been fired at Israel, reports CBS News correspondent Robert Berger.
Military chief Lt. Gen. Dan Halutz halted artillery fire in the area while an investigation was conducted, the military said.
The incident is further escalating tensions after Israel assassinated a top Palestinian security chief appointed by the new Hamas government. Militant groups are promising revenge.
Moderate Palestinian President Mahmoud Abbas condemned what he called a "bloody massacre" and said the international community should halt the Israeli offensive.
"We regret any harm caused to innocent civilians," Israeli army Capt. Jacob Dallal said.
Israel offered medical assistance, including evacuation to a hospital in Israel.
In other developments:
The attack destroyed a tent and scattered body parts along the beach. A crowd flocked to the area, screaming and running around in confusion. One tearful man held the limp body of what appeared to be a girl or young woman.
Palestinian medical officials originally said nine people were killed but then lowered the toll to six. The confusion apparently stemmed from the extensive damage to the bodies.
Ground forces might have fired the shells, the military said, contradicting earlier reports that the artillery came from gunboats off the coast.
Another Israeli airstrike near Gaza City on Friday targeted a car, Palestinian officials said. No one was hurt in the attack, the Palestinians said. They said earlier that one person was killed.
Earlier Friday, tens of thousands of Palestinians, some firing in the air and calling for blood, flocked to a Gaza Strip stadium on Friday to bury the highest-profile militant commander that Israel has killed in four years.
Jamal Abu Samhadana, recently tapped as the Hamas government's security chief, died Thursday in an Israeli air strike on a militants' training camp in southern Gaza. Hamas, sworn to Israel's destruction, has interpreted the attack as an assault on its government, and has warned Israel that Abu Samhadana's death would be avenged.
The Hamas-led Palestinian government had recently appointed Samhadana to head a new security force, though he is a member of another group, reports . Israel said he was a key player in rocket attacks and behind the bombing of a U.S. diplomatic convoy three years ago that killed three American security guards.
"All options are open for the resistance groups to deliver a message to the enemy that must equal the magnitude of Abu Samhadana's loss," Hamas lawmaker Mushir al-Masri told Hamas Radio.
It wasn't clear whether Hamas, which suspended its suicide bombing war against Israel in February 2005, would take action against Israel directly or back other factions' operations, as it has done in the past.
Abu Samhadana, the leader of the small Popular Resistance Committees faction, was revered in Gaza as a key figure in Palestinian rocket attacks against Israel. A suspect in a deadly bombing of a U.S. convoy in Gaza in 2003, he maintained strong ties with the various Palestinian factions, and belonged to one of the most powerful clans in the teeming Rafah refugee camp where he lived.
No Rafah mosque could accommodate the thousands who turned out for the funeral prayers, so a makeshift mosque was set up at the local stadium. Prayer rugs were laid out on the grass, and a stage was built for the preacher to deliver the Friday sermon.
Hundreds of gunmen escorted Abu Samhadana's body from the morgue to his house, and then through the streets of Rafah on the way to the stadium. They fired thousands of bullets in the air, chanting, "God is great" and "Revenge, revenge."
Black PRC flags and green Hamas flags hung on the stadium's outer walls. A giant poster of the Al Aqsa mosque in Jerusalem, one of Islam's holiest shrines, was hung near the stage.
The prayer service proceeded quietly, and afterward, mourners streamed out of the stadium to the cemetery where Abu Samhadana was buried. Dozens of gunmen in the procession fired bullets in the air and some people chanted "God is great," and "We are ready to redeem you with our souls and our blood."
A cactus was planted on his fresh grave.