The assault, which has entered its second day, began at dawn on Friday when some 25 Israeli tanks and armoured personnel carriers invaded the town of Khan Yunus.
Aljazeera's correspondent in Gaza reports that the entire area has been closed off as Israeli forces continue to bulldoze homes and other buildings, leaving scores homeless.
On Friday night, an Israeli missile strike destroyed two buildings in Gaza City hours after occupation troops killed up to nine Palestinians and demolished several homes.
There were no reports of casualties in the strike on an abandoned house and a metal workshop.
However, several people, including women and children, are being treated for shock at the Dar al-Shifa hospital, Hiba Akila, reports.
Two more Palestinians have been killed on Saturday. Thirty other Palestinians have also been injured.
The fence surrounding the Nasir hospital has been damaged.
The military invasion began with a helicopter strike in the Khan Yunus refugee camp in southern Gaza where a resistance fighter was killed and four other people were wounded.
The fighter has been identified as Rami Abu Saada, a field commander in the Abu al-Rish Battalions of the Fatah movement, Aljazeera's correspondent reports.
Medics and witnesses said Khalid al-Rantisi, a 24-year-old civilian, was shot in the head.
Two of the Palestinians killed
were said to be civilians
Another Palestinian, said by witnesses to be also a civilian, was later killed during fighting as the army bulldozed a number of houses, saying it was trying to uncover launching points for missiles and mortars.
Medical sources told Aljazeera that one Palestinian was killed inside his home by Israeli sniper fire.
Aljazeera's correspondent in Gaza, Hiba Akila, reports that snipers have taken up rooftop positions and are opening fire at anything that moves, including women and children.
Hospitals have received casualties with wounds to the head or the neck, the correspondent added.
About 600 people, many carrying small children in freezing pre-dawn darkness, fled their homes in neighbourhoods bearing the brunt of the raid, and were given shelter in a UN-run school.
They said a number of homes had been demolished.
Affected families are being
sheltered in a UN-run school
"What peace and what pullout? We only feel fear and cold. I do not know even if my house was still standing or if it was demolished," Kamila Attubji, 36, a mother of 10, said.
Israeli forces say buildings they raze in such raids are used as cover for resistance fighters targeting settlements. Residents uprooted by demolitions complain of collective punishment.
An Israeli army commander in the Khan Yunus area said the raid would continue as long as was required.
"We will carry on and I can say we will do all we can to reduce the threat to the local communities who should not have to live like this," Lieutenant Colonel Dotan, who declined to give his surname, said in reference to mortar barrages.
The incursion was the second serious army sweep into Palestinian territory since a short period of calm after Arafat's death on 11 November.
The army said that at least 30 rockets and mortar bombs had been fired at Jewish settlements in the Gaza Strip during the week.
The Khan Yunus raid was preceded by another airborne missile attack on a workshop in Rafah near the border with Egypt on Thursday night, which the army said contained munitions stored by Hamas.
Palestinian witnesses said on Thursday the target was a basement carpentry shop. Local medics confirmed no one was hurt.
On Friday, six Palestinians were rescued from a tunnel on the Gaza-Egypt border that had collapsed and trapped them underneath the rubble for almost 12 hours.
Witnesses in Rafah said earlier on Friday at least five Palestinians might have been killed in Friday's tunnel collapse.
Israeli occupation forces controlling the area allowed Palestinian ambulances and rescue workers to get to the scene of the incident.
Palestinians have dug many tunnels from Egypt into Gaza to slip in arms, but other tunnels have been used solely to smuggle in contraband such as cigarettes.
It was unclear whether the tunnel that collapsed had been dug by resistance fighters or traders.