Dozens of Palestinians were rendered homeless after Israeli troops destroyed two apartment buildings in the Khan Younis refugee camp after forcing 150 families to evacuate their homes.
Hours earlier, an Israeli helicopter fired four missiles at a street near a hospital, wounding several Palestinians while its tanks rolled into the camp.
The attack came a day after 16 Israelis were killed in twin bus bombings in the southern Israeli town of Beersheba.
An Israeli military source said the strike had targeted "an explosive device spotted in an open area" of the camp.
The Israelis said the incursion was not in response to the bus bombings.
Colonel Yehoshua Rinski, commander of the operation, said the raid was aimed at stopping Palestinian fighters from firing mortar bombs at nearby Jewish settlements.