Medical sources at the Kamal Adwan hospital in Bait Lahya in northern Gaza told Aljazeera.net that the six child victims of Tuesday's shelling were from one family.
The Israeli army commander in north Gaza expressed regret "if civilians were indeed hurt".
Aljazeera's correspondent in Gaza City, Wael al-Dahduh, reported that an eighth Palestinian was killed and another two wounded after being shot by Israeli forces stationed east of al-Zaytun neighbourhood in southeast Gaza.
Witnesses reported an exchange of fire in the area between resistance fighters and Israeli soldiers.
From New York, UN Secretary-General Kofi Annan said he was gravely concerned about Tuesday's Israeli military operations in the northern Gaza Strip.
Six of the victims of the Israeli
shelling were from one family
"He is particularly disturbed that at least five of the victims were under the age of 18," Annan's spokesman said, adding that the Israeli assault followed a "marked increase" in rocket attacks by Palestinian fighters.
For his part, front-runner in the race for Palestinian president and chairman of the PLO executive committee, Mahmud Abbas, for the first time called Israel "the Zionist enemy" after word of the Bait Lahya killings reached him.
"We are praying for the souls of our martyrs who fell today to the shells of the Zionist enemy," Abbas told a rally in the
south Gaza refugee camp of Khan Yunus, a resistance stronghold.
This in turn brought the following rejoinder from Israel's Vice-Premier Ehud Olmert: "Without a doubt, what Abu Mazin said was intolerable and unacceptable, and it cannot serve as a basis for any future cooperation."
Abbas later tried to visit the wounded in a Bait Lahya hospital but drove away without getting out of his car because of tank bursts nearby after a rocket volley by resistance fighters into Israel, which caused no casualties.
"This will not bring peace for anyone. If such aggression
continues we will not be able to engage in a peace process," Abbas said, referring to the killing of the youths.
"But I also condemn all pointless [mortar and rocket] actions happening here and there," he said. "These actions are wrong and I will not apologise for [saying] that."
Palestinian officials said Israeli military operations in Gaza threatened to disrupt the election while Israel says it is trying to stop intensifying mortar and rocket fire by fighters who have spurned Abbas's call for restraint.
Referring to the seven killed in the Bait Lahya farm, Aljazeera's al-Dahduh said they had all been identified. Three were brothers who belonged to the Ghaban family.
The other victims were a nephew and two relatives of the Ghaban family besides a member of the Kasih family.
"The bodies of the boys were mutilated beyond recognition," Dr Muhammad Sultan, a hospital emergency department spokesman told Aljazeera.net.
An angry Abbas called Israel the
'Zionist enemy' after the killings
Sultan identified the Ghaban brothers as Ragih Ghassan, 11, Muhammad Kamal, 13, and Haidar Abd Allah, also 13.
All of them were buried at the martyrs' cemetery in Bait Lahya. Thousands of people joined the funeral march later on Tuesday.
Those injured in the shelling were local residents. They received treatment at Dar al-Shifa hospital in Gaza City.
The Israeli army initially said it had fired at a group of Palestinians who were seen firing rockets, but the targeted area was an agricultural farm that was visible from the Israeli military posts guarding Jewish settlements.
Palestinian witnesses said Israeli tanks fired into Bait Lahya shortly after mortars crashed into the nearby Jewish Nissanit settlement, wounding two people.
Israeli sources said a mortar landed near an Israeli bus carrying school students travelling near the settlement, injuring the driver and a student.
Israeli settlements built on occupied Palestinian lands are deemed illegal under international law.