Another 70 Palestinians were injured and two Israeli soldiers badly wounded in the raid that started late Sunday, sources on both sides said.

The bloody operation, which the army said was aimed at halting mortar fire at Gaza settlements and military positions, came just hours before the Israeli parliament was to debate a controversial pullout from the Palestinian territory next year.

The victims, among them an eight-year-old boy, died in either air strikes or from gunfire and tank shelling the town of Khan Yunis.

It was not immediately clear if most of the dead were civilians or armed militants in the incursion, which saw around 30 Israeli armored vehicles and seven bulldozers entered an 800-meter (yard) section of Khan Yunis, occupying an entire neighborhood.

The raid occurred just 10 days after Israeli troops wrapped up a major operation in the northern Gaza Strip which left 130 Palestinian dead.

UN statistics showed that the offensive, during which troops tried to stop militant rocket fire at southern Israel, also left 675 Palestinians homeless and caused more than three million dollars worth of damage.

Israeli Prime Minister Ariel Sharon has been trying to deliver a knock-out punch to the militants in Gaza, eager to counter criticism that his planned withdrawal of all troops and Jewish settlers from the territory next year will merely serve to strengthen armed factions there.

The latest deaths raised to 4,528 the number of people killed since the second Intifada began in September 2000, including 3,498 Palestinians and 956 Israelis.

Palestinian medics said some 70 people had been injured since fighting broke out late Sunday, while Israeli military sources reported that two soldiers were badly injured during the operation.

Troops also razed three buildings, leaving nearly 60 people homeless, Palestinian security sources said.

Israeli military sources confirmed destroying at least one building which they said was the home of Mohammed Sinwar, a local leader of the Hamas movement who it said was responsible for attacks on Jewish settlements in the area.

A spokesman for the Israeli army said four air strikes launched overnight and early Monday targeted several groups of armed Palestinians who were either approaching the troops or preparing explosives to use against them.

The spokesman said "military activity" was heightened in the area after Palestinians had fired dozens of mortar rounds against Jewish settlements in recent days.