Demonstrators stood outside Ehud Olmert's official residence in Jerusalem holding banners that read, "Stop, war crimes ahead," and "Swap hostages now!"
The protest follows smaller actions on the same theme in the past few days at the Sufa army base near the southern Gaza border and outside the defence ministry in Tel Aviv.
Last night's demonstration was organised by Yesh Gvul, the peace movement that supports refusal to serve in the Israeli Army.
Police and organisers estimated 600 people attended the protest.
Yishai Menuhin, a spokesman for Yesh Gvul, said: "We call for our government to stop targeting Palestinian civilians – the targeting of civilians is a war crime – and start negotiating with the elected Palestinian leaders, not to arrest them."
Aviv Sela, a 19-year-old who has been jailed for refusing to serve in the army, said at the protest: "The military solution is not a solution."
He added that, while not everyone is prepared to go to prison, "everyone has the strength to say no" to the attack on Gaza.
Other demonstrators chanted, "The occupation is terror, the refuser is a hero."
Within Israel, the Gaza invasion is being portrayed as an attempt to release an Israeli hostage, 19-year-old corporal Gilad Shalit.
The soldier was snatched during a raid on Israeli positions outside Gaza last Sunday, in which two Israeli soldiers and two Palestinian attackers were killed.
Prisoner of war
Tamar Gozansky, a former Knesset member, said on Saturday night: "The soldier is not a hostage, he is a prisoner of war. Israel is holding about 7,000 Palestinian prisoners in jail."
Demonstrators believe that the Gaza invasion had little to do with the kidnapped soldier. "It is not self-defence and it is not new – Israel has been dropping artillery shells on Gaza and attacking the population for months," said Zvi Schuldiner, who attended the protest.
"People have been in the army and know the difference between acts of terrorism and this classic and very daring commando act, of fighters against soldiers," said veteran peace activist, Uri Avneri.
Commentators on the left say that the wider Israeli public is critical of the Gaza invasion, not least because there is little trust for the leadership of Olmert and the defence minister, Amir Peretz.
"There is a growing doubt about it, the gap between what the government says and what logic says is getting bigger from day to day," said Avneri.
A recent poll in the newspaper Yediot Aharonot shows 58% in favour of a prisoner swap to release Shalit.
But Saturday night's demonstrators were not hopeful of getting such a message through to the government.
Would the prime minister be paying attention to the demonstration outside his house? "We hear he's really enjoying the world cup," said Menuhin.