The settlers, from the illegal Kfar Darom colony near the Palestinian town of Dair al-Balah, were masquerading as humanitarian aid workers bringing financial assistance to the Palestinians of the area of al-Maani, adjacent to the colony.
Al-Maani has been sealed off from the rest of the Gaza Strip since July 2002, and is populated by approximately 140 civilians living inside the Israeli settlement bloc of Kfar Darom in the central Gaza Strip.
Residents suffer from extreme restrictions on their movement, and are only allowed to enter and leave the area at certain hours.
According to a press release issued by the Gaza-based Palestinian Centre for Human Rights (PCHR), Palestinian civilians living in the isolated enclave were visited last week by an individual claiming to be a resident of the Netherlands working for a German NGO.
The organisation, he said, was providing money for "humanitarian relief" purposes to residents in the area.
The individual then gave the Palestinians $1000 each, after asking them to sign blank pieces of paper with their ID numbers and signatures. Some 14 representatives of families from the area signed the paper.
On Tuesday evening, a jeep containing three Israeli settlers, and a man claiming to be an Arab-Israeli lawyer approached the Palestinians, saying they were acting on behalf of the German national who had visited them the week before.
The "lawyer" promised the Palestinians more financial assistance conditional upon signing additional papers.
Once the Palestinian families suspected foul play, the group of settlers escaped in their jeep, running over a crowd of Palestinians in the process.
Israeli soldiers preparing to enter
Dair al-Balah in Gaza
Some 11 Palestinian civilians were injured by the jeep - two of them critically, according to medical officials at the al-Aqsa hospital in Dair al-Balah. Among the injured was two-year-old Alaa Sulieman al-Ma'ani.
Witnesses said instead of stopping the settlers, Israeli forces came to the area and protected the path of the jeep back to the settlement, and that Palestinian ambulances were not given access to the area to tend to the wounded for more then two hours.
The Israeli army denied that settlers were involved in the incident, saying that they only knew of "one person ... an Arab-Israeli" involved in the incident.
"This is an Arab-Israeli who entered the area and claimed he was running a scheme," said a spokesperson for the army, adding that there was no Israeli army involvement and referring Aljazeera.net to the Israeli police for details.
The spokesperson added she was "not sure exactly how the person entered" al-Maani. The only entry point for non-Palestinian residents of the area is through the settlement, which is protected by the Israeli army.
According to the United Nations Office for Coordination of Humanitarian Affairs (OCHA) entry into the enclave by other means for international organisations remains problematic.
"This is an Arab-Israeli who entered the area and claimed he was running a scheme"
Israeli army spokesperson
PCHR said it was "shocked by the latest attempt by Israeli settlers to appropriate land from Palestinian civilians for their own self gain".
The settlers are illegally residing on occupied Palestinian land.
The human rights group has demanded an immediate impartial investigation into the matter.
Last week, a mob of Israeli settlers in the Gush Katif settlement of Neve Dekalim beat unconscious a Palestinian boy from the sealed off enclave of Mawasi in the southern Gaza Strip with iron bars, stones and rifles.
Israeli authorities have arrested two suspects and say they are searching for other suspects involved in the case.
Meanwhile, the Reuters news agency, quoting army and resistance sources, reported that Israeli troops killed a Palestinian fighter and wounded another as they attacked a Jewish settlement in the Gaza Strip on Wednesday.
Claiming responsibility for the night-time attack on Morag, the Islamic Jihad group said it also fired mortars at the settlement.
There were no Israeli casualties. The wounded fighter managed to get to a Palestinian hospital, Islamic Jihad said.