Fresh clashes have broken out in Gaza City as Israeli troops combed an area to recover remains of a six-man crew killed by an anti-tank bomb on Tuesday.
Israel has vowed to stay in Gaza City until the remains are recovered
At least four Palestinians were killed and others hurt when helicopters fired rockets at a house in the Zeitoun area.
Militant groups have agreed to hand the body parts back if troops pull back and return bodies of "martyrs" from Israel.
Dozens of armoured vehicles patrolled the streets, in Israel's biggest offensive in Gaza for years.
Troops demolished buildings and burst into homes in the densely populated Zeitoun quarter, backed up by snipers on rooftops and Apache helicopters hovering overhead.
Navy gunboats shelled the coast and opened fire on an area near Palestinian leader Yasser Arafat's old compound.
At least 11 Palestinians have been killed and 130 hurt during the incursion.
Latest reports say a second Israeli military vehicle was hit by a large explosion in a separate incident near Rafah in the southern Gaza Strip.
The Palestinian Authority has called on militant groups and any residents of Gaza who have the remains to return them "in conformity with human rights and the Muslim religion".
The militants have been holding talks with Egyptian diplomats and the International Committee of the Red Cross trying to persuade them to give the body parts up.
Israeli leaders say they will not enter negotiations and have vowed to keep forces in place until their comrades' remains are handed over.
APC 'full of explosives'
The soldiers' remains were taken from the scene of a huge explosion that hit an Israeli military armoured personnel carrier early on Tuesday.
The vehicle was blown to pieces, scattering debris and body parts over a wide area, when it ran over an improvised bomb in the road.
The APC had been loaded with explosives intended for use in a raid to destroy workshops suspected of producing homemade rockets that militant groups fire at Israeli targets.
Several militant groups claim to have gathered the soldiers' remains
Arabic TV channel al-Jazeera, broadcast video footage on Tuesday showing members of Islamic Jihad with what they said was the head of an Israeli soldier on a table in front of them.
The attack was the worst single blow to Israel's army since November 2002 when nine soldiers and three settlers were killed by gunmen in the West Bank city of Hebron.
The violence comes as Palestinian officials revealed that US President George W Bush had written to them affirming his commitment to the peace plan known as the roadmap and that issues in the Israeli-Palestinian conflict must be resolved by talks between the parties.
The letter was aimed at easing tensions after Mr Bush told Israeli Prime Minister Ariel Sharon that Israel would not have to absorb any Palestinian refugees or withdraw from all of the settlements it has built in the West Bank.