More than 1,000 are said to have been left homeless in Rafah
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Israeli troops, backed by about 40 tanks and helicopter gunships, have raided the Rafah refugee camp in Gaza in the second large-scale incursion in less than a week.
Palestinian medical officials say at least three Palestinians have been injured in the operation, which the Israeli army says is aimed at destroying tunnels used to smuggle arms into the camp from neighbouring Egypt.
In a repeat of Friday's raid, which United Nations officials said left 1,200 people homeless, local residents say the Israeli forces have destroyed a number of homes.
The first operation, in which eight Palestinians, including two children, were killed was condemned by United Nations Secretary General Kofi Annan.
He issued a statement saying he "deplored" the killings.
Weapons claims
Palestinian witnesses said two columns of armoured vehicles entered the camp from two directions before 0400 (0200 GMT), heading for a different section of the camp from the one targeted earlier.
The sounds of gunfire and explosions filled the night the BBC's correspondent in Gaza, James Rodgers, said.
The Israeli army said it had discovered three tunnels in the camp, but no weapons had been found so far.
Egyptian Foreign Minister Ahmed Maher rejected the Israeli accusations that arms were coming in from Egypt on Monday saying the claims were "without foundation".
Correspondents say the raid marks a change from previous Israeli tactics of launching brief incursions into Palestinian-controlled areas.
Disaster zone
A senior UN official who went to assess damage said it looked like there had been a severe earthquake at the densely-populated camp in the south of the Gaza Strip, with up to 120 homes demolished.
But an Israeli army spokesman put the damage at "several" buildings destroyed, with the military targeting only structures used by militants.
Israel says it will continue to demolish tunnels
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"Many, many houses - maybe as many as 120 - have been completely demolished. They would have been the homes to 250, 300 families," said Peter Hansen, commissioner general of the UN Relief and Works Agency (Unrwa).
"And if you multiply that by the family structure you're talking about a great many people, as many as 1,500, have been made homeless.
His agency had yet to complete a definitive tally of the damage to property in the raid.