An Israeli military spokeswoman said that the strike was aimed at a vehicle used by fighters it accused of planning an attack against Israel.
But witnesses said that the missile struck a group of pedestrians.
The dead men were thought to be members of the al-Aqsa Martyrs Brigades, an armed group linked to Fatah.
Two bystanders were seriously injured and a 6 year-old boy received leg wounds during the strike.
Israel launched an offensive in Gaza in June to try to recover a captured soldier and to stop cross-border rocket fire. Over 220 Palestinians have been killed in the offensive.
Two makeshift rockets were fired at Israel on Saturday. One landed in the garden of a house in the southern Israeli town of Sderot, lightly wounding one person. The Islamic Jihad group claimed responsibility for the rockets.