The Israeli military said the strike on Friday targeted a camp used by the Popular Resistance Committees (PRC), an umbrella group of activists often blamed for firing makeshift rockets into Israel.
"There was an aerial attack on a training compound of the PRC while terrorists were training there," an Israeli military spokeswoman said.
The air strike scattered body parts and left pools of blood in a field just metres away from the home of Moumtaz Dourghmush, the top commander in the PRC.
Dourghmush was not at the scene, but a brother and three cousins were among the dead, hospital officials said.
Abu Mujahid, an official with the group, said at least three missiles landed on the field as members were training.
"God willing, this is not going to stop our heroic battle against the Zionists, and the blood is the fuel of our resistance and our reprisal is coming soon," he said.
The Israeli military has recently stepped up air strikes against Palestinian fighters as well as artillery barrages against what it says are rocket launch sites.
This is the first air strike since Israel's new government took office on Thursday under Ehud Olmert, the prime minister.
Palestinians clashed with Israeli
troops in Balata camp on Friday
Peace hopes remain dim since Hamas took control of the Palestinian Authority in March after beating the long-dominant Fatah of Mahmoud Abbas, the Palestinian president, in January's parliamentary election.
Ghazi Hamad, Palestinian cabinet spokesman, told Reuters: "The crime today (in Gaza) is a blood soaked message sent by Olmert to the international community."
Earlier on Friday, at least one Palestinian was killed after Israeli troops opened fire on stone-throwing youths in the northern West Bank.
Five Palestinians were wounded in separate clashes with the Israeli soldiers elsewhere in the territory.
Muhammad al-Kutub, 19, died from a bullet to the chest after soldiers opened fire on protesters in the city of Nablus.
The clashes broke out after Israeli soldiers entered Nablus and took up position around the home of a wanted activist from the armed wing of the Popular Front for the Liberation of Palestine (PFLP), witnesses said.
An Israeli army spokeswoman told AFP that the soldiers had identified and opened fire on a Palestinian holding a firebomb which he was about to throw at them.
'We may starve but we will not
cave in,' Haniya said from Gaza
Another Palestinian was wounded and four members of the faction, including the wanted man, were arrested, Palestinian sources said.
Earlier, five armed men from the al-Aqsa Martyrs' Brigades, an armed offshoot of Abbas' Fatah, were wounded in exchanges of fire with Israeli soldiers in the Balata refugee camp in Nablus.
The gunfight broke out shortly after around 50 jeeps and four army bulldozers piled into the camp, where soldiers conducted house-to-house searches, medical and security sources said.
Israeli troops imposed a curfew on the camp and sealed off entry points.
Seven Palestinians were arrested in the operation, Palestinian sources said.
Meanwhile, thousands of Palestinians held rallies across the Gaza Strip and the West Bank in support of the Hamas-led government, which continues to face diplomatic isolation and aid cuts from donors.
Palestinian officials have warned that the economy could collapse within months as Israel and Western countries led by the US keep up pressure on the Palestinian Authority (PA).
Israeli soldiers carried out a raid
in the West Bank city of Nablus
The West has cut direct aid while Israel has stopped tax transfers to the PA.
The aid cut-off has deepened poverty in Gaza and the occupied West Bank.
Many on Friday carried banners which called US moves "a starvation and siege" of Palestinians.
"These are wrong policies. You are leading the region towards a big explosion," Hamas lawmaker Mushir al-Masri told supporters in Gaza.
Thousands carrying Hamas flags held a solidarity rally in the West Bank city of Ramallah, with collection boxes passed round by Hamas officials.
"Although it is a small sum, it will encourage others to help," Ismail Abed, 37, a Ramallah merchant, said as he placed money into one of the boxes. "It is a symbolic gesture."
Women and young girls also handed over their jewellery.
Supporters in Ramallah cheered as Ismail Haniya, the Palestinian prime minister, spoke to the crowd via a video link from Gaza.
"We may starve but we will not cave in," he said.
Aziz al-Dweik, the Hamas parliament speaker, told the rally: "We tell the West: We stand with our government and we won't abandon it. Our government must stand tall and not make concessions.
Hamas supporters held rallies in
Gaza and West Bank on Friday
"We renew our pledge of allegiance to (prime minister) Ismail Haniya and his government," Dweik added.
A Palestinian official said Haniya had been contacted by a Saudi businessman who had donated eight million Saudi riyals ($2.1 million).
It was not clear, however, how the money would reach the government.
In other news, Abbas arrived in Gaza on Friday for talks with Haniya. But officials said the meeting was likely to be postponed until Saturday due to ongoing violence.
Hamas, which is sworn to Israel's destruction, refuses to recognise the Jewish state or disarm, key conditions demanded for resuming aid.
The government has been unable to pay salaries to 165,000 PA workers, whose wages are a key driver of economic activity in Gaza and the West Bank.
Palestinian officials say US pressure has also thwarted a Hamas-backed plan for the Arab League to deposit donor funds directly into the accounts of workers.
The government needs $120 million a month for salaries and has failed to pay March and April wages.
Officials say it is also unlikely to secure funds for May salaries.