Clashes erupted on Thursday between invading troops and Palestinian resistance fighters in Rafah, a regular site of Israeli incursions. Soldiers fired near a school, hitting a 14-year-old boy in the chest and killing him, said hospital officials.
A total of nine Palestinians were injured in the raid, including another two students.
The army stormed the town in search of alleged tunnels used by Palestinian resistance groups to smuggle weapons from Egypt.
Israeli bulldozers also destroyed five homes and damaged seven others, said Palestinian security officials. The army damaged the water and electricity networks and flattened large areas of agricultural land, said security officials.
Tanks prevented medical teams from leaving the local clinic, students in two area schools were unable to attend classes and the town was divided in half, said residents.
Just before the raid, Awani Kaloub, a well-known member of the Popular Resistance Committee - an umbrella organisation of resistance groups responsible for anti-Israel attacks - was killed in an explosion in his Rafah house.
A day earlier an Israeli helicopter
stike left three Hamas activists
dead in Gaza City
Palestinian security officials said he was apparently preparing a bomb that exploded prematurely. Seven of his relatives in the house were injured.
Palestinian President Yasir Arafat condemned the invasion, which comes ahead of a proposed Israeli withdrawal from almost all of the occupied Gaza Strip.
"They say they want to leave Gaza, but before leaving they are increasing their massacres against our people," Arafat said.
As the raid continued in Rafah, two men near Gaza City were seriously wounded when an Israeli tank opened fire on them as they returned from their jobs on a nearby farm, said hospital officials. The army said it had no information on the incident.
In the occupied West Bank, Israeli forces invaded the village of Maitalun near the city of Jenin and arrested a senior resistance leader from the al-Aqsa Martyrs' Brigades, identifying him as Raid Khaliliya.
The army said he was armed with a pistol.