Two Palestinian civilians were killed and 12 others were wounded in what appears to be the latest in a series of botched Israeli missile strikes against Gaza militants.
An Israeli army spokeswoman confirmed the army had carried out a strike against "a militant cell", but gave no further details.
One of the dead was a woman who died immediately. The other, a man who was visiting relatives at the time of the strike, died later.
The wounded include a pregnant woman and four children, two of whom are less than a year old.
The strike brings to 14 the number of Palestinian civilians killed in recent Israeli air attacks, a death toll that has brought international criticism and pushed Israel to defend its tactics.
Witnesses to today's attack said an Israeli aircraft fired a missile at a car on a main road near Khan Younis.
The car, apparently carrying members of the Islamic Jihad militant group, escaped the attack but the missile slammed into a house.
Among the 13 wounded were a pregnant woman and four children, including two less than a year old. Medics said some were in critical condition
Meanwhile, a senior United Nations official renewed a plea to Israel today to cease its targeted assassinations.
Palestinians have warned the Israeli attacks would fuel more violence but Israel defends them claiming they are necessary to end cross-border rocket salvos by Palestinian militants.
"We would like to once again underscore the need for Israel to cease targeted killings, which continue to claim civilian lives," Ibrahim Gambari, the UN undersecretary-general for political affairs, told the Security Council.
Secretary-General Kofi Annan was "particularly disturbed that despite his prior expressions of concern, this pattern was repeated yesterday, when three children were killed and a number of bystanders injured, during another attempted targeted killing by Israel , also in a crowded neighborhood in Gaza," Gambari said.
At least 64 Palestinians have been killed, including at least 11 children, and at least 328 Palestinians have been injured during the past month, Gambari said.
Forty-nine of those killed and 259 of the injured were victims of violence between Israelis and Palestinians while the rest were casualties of intra-Palestinian violence.
One Israeli was killed and 18 injured in Israeli-Palestinian violence during the same period, he said.