Health authorities in Gaza have accused Israeli forces of killing women and children queuing for supplements and medicine near a medical centre in the strip.
At least 15 people were killed in the strike in Deir al-Balah on Thursday, among them six children.
The Israel Defense Forces (IDF) said it had been targeting a Hamas fighter.
Graphic video of the aftermath of the attack, published by news agency Reuters, shows a street cloaked in thick dust and bodies lying in pools of blood, as mothers sat clutching the lifeless bodies of children.
Hamas labelled Israel's attack as "another atrocious crime by this rogue entity in its ongoing genocide in Gaza."
"The terrorist Netanyahu government is escalating its brutal massacres against innocent civilians in shelters, streets and displacement tents, as part of its systematic pattern amounting to full-fledged ethnic cleaning, committed in broad daylight before the world's eyes," the militant group said in a statement.
Israel has long denied allegations of genocide and ethnic cleansing.
The IDF said it had been targeting a Hamas fighter who had entered Israel during the October 7 2023 terrorist attacks.
"The IDF is aware of reports regarding a number of injured individuals in the area. The incident is under review," it said in a statement.
"The IDF regrets any harm to uninvolved individuals and operates to minimise harm as much as possible."
The attack was just one of a number of strikes across Gaza on Thursday local time, killing dozens and injuring many more — even as hopes for a fresh ceasefire between Israel and Hamas grow.
US President Donald Trump had said he believed a deal could be reached within the next week, although little progress appears to have been made in formal negotiations mediated by Qatar and Egypt.
On Wednesday, Hamas indicated it would be willing to release 10 hostages as part of any halt in hostilities, but insisted Israel's "intransigence" had been no agreement on issues such as the delivery of aid to the strip and the withdrawal of Israeli forces from large swathes of Gaza.
Israeli Prime Minister Benjamin Netanyahu has been in the United States discussing prospects for a truce with the White House, and a senior official has told media in Washington DC that it could take another fortnight for any breakthrough.
IDF says it opened fire at aid sites
Changes to aid distribution in Gaza in recent months has been widely condemned, after the US and Israel backed a new private organisation to run the system.
The Gaza Humanitarian Foundation (GHF) was tasked with establishing distribution facilities, in what authorities said was a model which would keep vital supplies out of the hands of Hamas.
But Palestinian authorities say hundreds of people have been killed in gunfire outside of those sites in recent weeks, as desperate Gazans scramble for whatever supplies they could get their hands on.
The IDF has conceded opening fire on a number of people it said posed a risk to its forces, but has rejected allegations of indiscriminate killings near the sites — instead accusing Hamas of fuelling chaos and trying to undermine the system.
Israeli media outlet ynet has now revealed Israeli navy ships were involved in the shooting, carrying out what the IDF called "distraction fire" in early June.
Amid scathing criticism its handful of distribution facilities are not helping aid get where its needed, GHF has announced plans to work with community leaders to send supplies further into the strip.
A pilot program has been run in recent days, with Gazans undergoing vetting to ensure they do not have ties to Hamas before being provided with boxes of supplies for their communities.
"The Gaza Strip is a dynamic, dangerous environment that requires innovative solutions to get food to those who need it most," GHF's John Acree said in a statement.
The war in Gaza began when Hamas fighters stormed into Israel on October 7, 2023, killing 1,200 people and taking 251 hostages back to Gaza, according to Israeli tallies.
Israel's subsequent military assault has killed more than 59,000 Palestinians, according to the Gaza health ministry.
Most of the population of more than 2 million has been displaced, triggering widespread hunger and leaving much of the territory in ruins.
