Israelis fire on crowds in Gaza

Dozens of injured were carried to hospital

Israeli troops have opened fire during a protest by Palestinian demonstrators in the town of Rafah in southern Gaza.

At least 10 people were killed and 60 injured, though some reports put the number of casualties higher.

The army expressed deep sorrow for the loss of innocent life, but said tanks and a helicopter had fired warning shots to stop crowds entering the area.

US President George W Bush called for restraint from both sides and said he had asked Israel for "clarification".

"It is essential that people respect innocent life in order for us to achieve peace," he said.

But Palestinian leader Yasser Arafat called for international observers to protect his people, describing the events in Rafah as "atrocious crimes".

Rafah in shock Gaza: Occupation and anger

Reuters news agency quoted the UN special human rights envoy in the Palestinian territories, John Dugard, as saying that the strikes were "war crimes" and amounted to collective punishment violating humanitarian and international human rights law.

The Israeli military said it was too early to say exactly what had happened, although it suggested that explosives laid by Palestinians could have been responsible.

Army spokeswoman Brigadier General Ruth Yaron said that Israeli forces had fired warning shots after seeing "armed men in the midst of the demonstration".

"Tank shells were fired at [an abandoned] structure, at no point in the direction of the demonstrators," she said, although she admitted that it was possible that there may have been "casualties as a result of the tank shells".

"We regret the loss of innocent life and are offering to treat those who are injured in our hospitals," she added.

Hospital chaos

Thousands of people were demonstrating against a massive Israeli operation in the refugee camp on the edge of Rafah.

Israeli forces have thrust deep into densely populated areas

Israeli forces entered Rafah refugee camp on Tuesday to attack militants and find and destroy tunnels used to smuggle weapons.

It has been one of the largest and bloodiest operations in Gaza since Israel occupied it in 1967, leaving at least 34 dead and 100 wounded. There have been no Israeli casualties.

The incident happened as about 3,000 demonstrators marched down the main street of Rafah towards the Tel Sultan area where Israeli raids have been concentrated in the last two days.

Dramatic TV footage of the incident showed a large explosion going off in the middle of a crowd as Israeli helicopters flew overhead firing anti-missile flares.

Dozens of wounded - many of them children - were evacuated by ambulance, private cars and donkey carts to the Rafah hospital, witnesses said.

A BBC correspondent at the hospital said the floors were drenched in blood as doctors treated incoming patients in corridors and on staircases.

Besieged district

The bloodshed came shortly after reports that thousands of Tel Sultan residents had complied with an Israeli demand that they surrender.

Twenty-four Palestinians have already died in Tel Sultan during an operation dubbed "Operation Rainbow" by the Israeli army.

Soldiers had called on loudspeakers for all males aged 16 or over to come out carrying white flags or risk the demolition of their family homes.

Israeli commanders later told journalists they only wanted militants to come out.

Israeli actions have raised an international outcry after army chief Lt Gen Moshe Yaalon said troops would flatten rows of homes in Rafah camp to widen a patrol road along the border with Egypt.

Palestinian militants are active in the area, and seven Israeli soldiers were killed nearby in ambushes last week.

The area also houses tunnels for smuggling weapons from Egyptian territory less than a kilometre away, the army says.

However, the army said on Tuesday that there was no plan to carry out systematic demolition of homes during the operation.