Ten Palestinians were killed and around 40 wounded Wednesday when an Israeli helicopter opened fired on a demonstration against the biggest ever army operation in the Gaza Strip, medical sources and witnesses said.
The attack happened in the Tal Al-Sultan neighbourhood of Rafah's refugee camp which has been the scene of the bloodiest clashes since Tuesday morning's start of Operation Rainbow, which has now left 34 Palestinians dead.
In the immediate aftermath of the missile strike, a steady flow of panicked civilians could be seen carrying the wounded to the nearest ambulances.
Several children with their heads covered in blood were being rushed away by their relatives, friends and strangers.
Four other Palestinians were also killed earlier Wednesday Tal Al-Sultan after being ordered by Israeli troops to surrender, Palestinian sources said.
One was a 13-year-old boy, while a man was killed by an Israeli tank shell while carrying a white flag, the sources said.
Israeli sources, however, insisted that the troops had not killed anyone who had voluntarily left their homes.
"We know of incidents of people coming out of their homes with white flags and then other Palestinians shooting them," said a military spokeswoman.
Witnesses said all males over the age of 16 were told by loudspeaker to come out of their homes with their hands in the air.
"Any armed person is a target for us and his house will be destroyed," they were warned.
Witnesses said that the army had also blown off the doors of shops and houses as soldiers continued to conduct sweeping searches of the neighbourhood.
The Palestinian leadership has accused the Israelis of conducting a "war of extermination" in Rafah while the UN Security Council is considering its response to events.
Israel came in for further international criticism Wednesday, with British Prime Minister Tony Blair calling the operation "unacceptable and wrong" while Moscow slammed what it called a "disproportionate use of force".
The Israeli military however insisted that its operations were justified in order to prevent weapons being smuggled to Palestinian militants from under the border with Egypt, claiming that a batch of anti-tank and anti-aircraft missiles were waiting on the Egyptian side to be delivered.
According to witnesses in Tal Al-Sultan, which has been virtually sealed off from the rest of Rafah, most of the phone lines are down, while the water and electricity networks have been destroyed.
"The Israeli army destroyed the generator for the sewage pumping station and waste is now spilling into the streets. The health situation is horrible," said resident Hassan Abu Yusef.
The Palestinian emergency services accused the Israeli army of blocking ambulances in northern Gaza from reaching Rafah.
"This is an absolute disaster. We sent ambulances to support Rafah but the Israleis are preventing them from reaching the place," said Mohammed Salama, who is head of emergencies at the Palestinian health ministry.
The Physicians for Human Rights-Israel group confirmed that ambulances were unable to move south of the town of Khan Yunis to provide assistance to medics working in Rafah.
Yossi Beilin, one of the chief architects of the Oslo peace accords and the leader of Israel's left-wing Yahad party, said the operation was doomed to failure.
"There is no situation in the world in which the army will be able to resolve the conflict between us and the Palestinians, not from a military point of view and not from a political point of view," he said.
"It is completely unacceptable to continue baptising Gaza in blood because when Gaza is drenched in blood, it is also the blood of our children."
Israeli Prime Minister Ariel Sharon wants to evacuate the Gaza Strip and its 21 Jewish settlements but his plans were vetoed in a referendum by members of his right-wing Likud party earlier this month.
Government sources said Wednesday the premier would propose a phased pull-out from Gaza in a reworked plan he will shortly present to his cabinet.
By the end of the process the army would have withdrawn from the whole area except for the strip known as the Philadelphi road along the border with Egypt in the Rafah sector.
Meanwhile, violence also flared in the West Bank, with a militant from the Al Aqsa Martyrs' Brigades shot dead early Wednesday during fierce clashes in Nablus.
An 18-year-old Palestinian who was wounded during an Israeli incursion into northern Gaza last month also died of his wounds Wednesday.
The latest deaths brought the overall toll since the September 2000 start of the Palestinian intifada to 4,064, including 3,075 Palestinians and 918 Israelis.