Israeli tanks and soldiers launched the new assault early Tuesday - hours after a damning human rights report condemned previous raids on the same refugee camp.
The invasion force consists of about 40 tanks, armoured personnel carriers and helicopter gunships.
Occupation forces had only just left Rafah on Monday after a three-day attack that killed eight Palestinians and left more than 1000 homeless last week.
But sunrise on Tuesday saw the return of an even larger attack force with the means to destroy many more homes and lives.
"Israeli helicopters opened fire on the area and soldiers took up rooftop positions on high buildings,” said Aljazeera's correspondent.
Dr Ali Musa, the head of Rafah hospital, told AFP that among
the injured was a 12-year-old boy who was in serious condition after being struck by shrapnel from a tank shell.
Residents said that water and electricity supplies were cut off and that three houses had been demolished.
There were reports of Palestinian fighters putting up resistance with small arms.
About five Israeli army vehicles also raided an area near the Israel settlement of Kfar Darom in Dair al-Balah, wiping out lands belonging to the Palestinian Abu Samra and al-Lahham families, added our correspondent.
Israeli occupation officials claim that resistance fighters in Rafah are trying to acquire shoulder-launched missiles that could threaten thousands of settlements, all of which are illegal under international law.
But while the army has discovered and destroyed three tunnels into nearby Egypt, no such ordnance was discovered – a discovery that cost Palestinians lives and homes.
The raid followed the fatal shooting overnight of a Palestinian man in the West Bank.
Israel soldiers said the unnamed victim was killed as he approached the Jewish settlement of Negohot near Hebron.
There was no independent verification of the Israeli claim.
Palestinians accuse occupation troops of killing civilians and later attributing to them "militant" motives.
Human rights group Amnesty International had condemned as “war crimes” the weekend raids on the southern Gaza Strip town.
Amnesty slammed Israel's use of "disproportionate force" and called for an end to its destruction of homes in the Palestinian territories.
"The repeated practice by the Israeli army of deliberate and wanton destruction of homes and civilian property is a grave violation of international human rights and humanitarian law...and constitutes a war crime," Amnesty said in a written statement issued in London.
"Amnesty International calls on the Israeli authorities to put an immediate end to the practice of destroying Palestinian homes and other properties, and of using excessive, disproportionate and reckless force against unarmed Palestinians...which frequently result in the killing and injuring of unarmed civilians, including children," the statement said.
Many of the old in Rafah are now
accustomed to destructive raids
Amnesty also urged Palestinian armed groups to "immediately halt" deliberate killings of Israeli civilians.
Eight Palestinians were killed and about 80 injured during a previous raid launched on Thursday.
The assault was likened to the atrocities carried out by the Israelis against Jenin in April 2002, which also brought international condemnation.
The UN assembled a team of inspectors to investigate allegations of war crimes, but Prime Minister Ariel Sharon refused to allow in the United Nations.
In Rafah, one witness described an overstretched hospital, struggling to deal with the dead and wounded. His account was received by the International Solidarity Movement (ISM), a Palestinian support group.
“People filled up the hospital and in the morning it was already low on supplies. Nobody could get to the European Gaza hospital, the only decent facility in the area, where (Israeli) tanks had been parked for days not letting anybody out or in,” the witness said.
“The dead waited in the refrigerators for identification. The beds were overflowing,” he added.
Another witness told ISM of the Israeli Army’s retreat: “It left, not through the streets as it had come, but by creating a path through the homes still standing in Yibnah (an area of Rafah).”
About 1500 people were also left homeless in Rafah refugee camp, the UN agency for Palestinian refugees has said.
Meanwhile, Egyptian Foreign Minister Ahmad Mahir dismissed Israeli charges that Palestinians were smuggling weapons via tunnels from Egypt as "without foundation."
"These are old and useless allegations that [the Israelis] know very well are without foundation," Mahir told reporters when asked about the Israeli army's operations to destroy tunnels in the southern Gaza Strip.
"We already said in the past that Egypt is opposed to arms smuggling operations," Mahir added.