During Wednesday's invasion, another five civilians, including teenagers, were injured, according to witnesses and medical sources.
Bilal Shahadah, 14, was shot in the head as he walked along a street in the vast impoverished camp on the border between Gaza and Egypt after an Israeli-imposed curfew, said witnesses.
Muna Ismail, a 31-year-old mother of two, was killed by tank fire while washing clothes and baking bread in her backyard with her sister, who was wounded along with a 13-year-old nephew, said neighbour Akram Brais.
Witnesses said another 10-year-old and 15-year-old were also injured.
The Israeli army first stormed Rafah early on Tuesday, destroying at least 30 Palestinian homes and damaging another 14, leaving 400 people homeless.
The International Committee of the Red Cross (ICRC) began distributing tents to accommodate the homeless.
Israel claims the raid is aimed at destroying alleged tunnels used to smuggle weapons from Egypt into Rafah, a hotbed of Palestinian resistance. Palestinians have been waging an Intifada against Israel's continued occupation since September 2000.
Meanwhile, Palestinian prime minister Ahmad Quraya met with a British parliamentary delegation on Wednesday and showed them part of the massive barrier Israel is constructing cutting off parts of the occupied West Bank.
Quraya said Israel's barrier leaves
no room for a Palestinian state
Quraya hosted members of the British Labour Friends of Israel (LFI) at his office in Abu Dis, a neighbourhood in occupied East Jerusalem, where a new concrete section of the barrier has just been erected.
"This is an eight-metre wall which will divide the city in two parts," Quraya told the delegation as they stood just outside his office.
Subjects discussed in the meeting included "the peace process, the wall, the continuous settlement activity, the incursions and daily destructions by Israel, and most recently, the crimes perpetrated in Rafah," said Quraya.
Israel is constructing a wall slicing off some of the most fertile parts of the West Bank and separating thousands of Palestinian farmers from their land and villages. Israel claims the wall is aimed at keeping out resistance fighters while Palestinians fear it will demarcate the borders of a future state.