John Bolton, the US ambassador to the UN, described the text as "unbalanced" and "biased against Israel and politically motivated".
He added that it did not provide an "even-handed characterisation" of the Israeli shelling.
Seven children and four women were among those who died in Beit Hanoun when Israeli tanks fired on their home as they were sleeping on Wednesday morning.
Ghazi Hamad, the Palestinian cabinet spokesman, said the veto was "a signal that the US had given legitimacy to the massacres and a green light to Israel to ... carry out more massacres.
"This is a shame on the American administration, which says it is trying to promote human rights and democracy in the Middle East."
Nabil Abu Rdaineh, spokesman for Mahmoud Abbas, the Palestinian president, said: "The US veto encourages Israel to continue with its aggression against the Palestinian people."
The text of the resolution, which was sponsored by Arab states, had also condemned the firing of rockets by Palestinian fighters into Israel.
Ten of the council's 15 members voted in favour and four -Britain, Denmark, Japan and Slovakia - abstained.
As one of the council's five permanent members along with Britain, China, France and Russia, the US has veto power which it has now used 82 times, often to shield Israel from censure.
America's previous use of the veto was in July to block a Qatari-sponsored draft resolution that would have condemned Israel's military onslaught in Gaza as "disproportionate force" and would have demanded a halt to Israeli operations in the territory.
Diplomats said Arab countries would now probably take their case to the 192-member UN General Assembly, where their draft would get a more sympathetic hearing.
Avi Pazner, an Israeli government spokesman, said: "The American veto is very satisfactory.
"The draft resolution did not stipulate that what happened at Beit Hanoun was a tragic error."
Abu Mujahid, a spokesman for The Popular Resistance Committees, a Hamas-linked group, said: "The Zionist aggression on Beit Hanoun was supported by American officers who were supervising the killing of our children, women and elderly.
"Therefore America and the Zionist entity are two faces of the same cause and they are going to be treated the same way, as the occupiers of our land. And they have to be held responsible for the consequences of this."
Israel has expressed regret for the loss of life in Beit Hanoun, but has said it will continue its military operations in Gaza.
The army said it was attacking areas where rockets had been fired in recent days at Israeli cities.
It said an investigation indicated that the casualties were caused by a "technical failure" in the fire control system of an artillery battery.
Wednesday's Israeli strike in Gaza received worldwide condemnation and led to calls for an immediate halt by Israel of its Gaza offensive, which has left more than 300 Palestinians dead since late June when an Israeli soldier was seized by Palestinian fighters.