Israeli troops backed by tanks and helicopter gunships have been engaged in fierce battles against suspected Palestinian militants in central Gaza.
Violence has increased ahead of a planned Israeli withdrawal from Gaza
Palestinians said 14 people - including an eight-year-old boy - were killed.
Israel described the raids into the al-Bureij and Nusseirat refugee camps as a "pinpoint" operation against the terrorist infrastructure in Gaza.
They come amid increased violence in Gaza, ahead of a planned evacuation of Jewish settlers from the Gaza Strip.
Both sides appear keen to make it look like a victory in the meantime, says the BBC's Matt Prodger in Jerusalem.
Sunday's raids saw dozens of Israeli armoured vehicles - backed by Apache helicopters - move into the camps under cover of darkness.
Sniper units were stationed on rooftops, as troops began searching houses.
Fierce fighting then broke out as gunmen poured into the streets to challenge the troops.
The Israelis say their soldiers were met with anti-tank missiles, other explosive devices and heavy gunfire.
"This is a pinpoint operation against the terrorist infrastructure in the central Gaza Strip," the Israeli army said.
The army said the incursion had been launched to target militants who had attacked nearby Jewish settlements recently.
Ten of the Palestinians killed were militants, some from Hamas, which has been responsible for the deaths of scores of Israelis in suicide bombings and ambushes.
The other four were children under the age of 16. Palestinian doctors said more than 50 people had been wounded.
There were no Israeli casualties reported, and the army has now withdrawn.
"It's a big massacre today against our people. We call on the whole world to condemn it," said the governor of central Gaza, Abdallah Abu Samhadama.
Palestinian Cabinet minister Saeb Erekat also hit out at Sunday's raid.
"At a time when they're speaking about withdrawing from Gaza, they're destroying Gaza," Mr Erekat said, referring to Israeli Prime Minister Ariel Sharon's plan to evacuate Jewish settlers from the Gaza Strip.
The BBC's James Rogers in Gaza says Israel wants to try and weaken Palestinians militants as much as possible before the planned withdrawal.
The incursion came within hours of violence at the Erez crossing
But Israeli government spokesman Avi Pazner said the operation had "nothing to do with any future plan about Gaza".
"Terrorism is pouring out of this refugee camp [al-Bureij], and we have to stop it," Mr Pazner said. "We believe that by doing so we have prevented acts of terror in Israel and saved many human lives."
Palestinian militants have threatened to exact a "painful revenge".
Up to six Palestinians were killed and about 20 wounded in an attack on the main crossing point between the Gaza Strip and Israel on Saturday.
Palestinian witnesses say two jeeps disguised as Israeli military vehicles drove up to Erez crossing point.
One exploded near a Palestinian checkpoint, killing the driver and two Palestinian police. The other reached the Israeli position before exploding.
An Israeli army spokesman described the blast as a suicide bomb that went off prematurely. There were no Israeli casualties.
The militant groups Hamas, Islamic Jihad, and the al-Aqsa Martyrs Brigades, say they carried out the attack, calling it a joint "self-sacrifice operation" in a message posted on the Hamas website.