Nine Palestinians, including two children, have been killed and at least 30 hurt in an Israeli air raid in Gaza.
Israel said the van was "loaded with Katyushas"
The Israeli army said it had targeted "a terror cell" on its way to fire rockets at Israel on a vehicle loaded with Katyusha rocket launchers.
The Islamic Jihad militant group said two of its members died in the blast. Seven civilians were also killed.
The incident was the latest in an escalating series of missile attacks from both sides.
The BBC's Alan Johnston in Gaza says although Israeli strikes on vehicles travelling through the territory have become familiar, Tuesday's attack resulted in one of the heaviest death tolls.
The dead were reported to include two brothers, four-year-old Hisham al-Mugrabi and eight-year-old Shaher, and their father Ashraf.
Palestinian Authority President Mahmoud Abbas accused Israel of engaging in "state terrorism".
Israeli Defence Minister Amir Peretz said Israel had so far been showing restraint, but would no longer do so.
Israel says about 100 rockets have been fired from across the Gaza border in the past few days.
After Tuesday's strike a yellow van was left mangled on the main road through the north of Gaza, while pools of blood lay nearby.
Islamic Jihad said the blast killed two of its militants, including its top rocket launcher, Hamoud Wadiya, the Associated Press reported.
Civilians were killed in a second blast at the scene
Witnesses said the first strike was followed soon afterwards by another missile, which hit civilians and rescuers who had gone to the scene of the first blast. At least one ambulance man was reported to have been killed.
Israeli military sources, however, said the latter explosion may have been caused by one of the militants' rockets.
There were scenes of anger as bloodied civilians were taken to hospital.
At the hospital's morgue, angry women shouted: "Death to Israel, death to the occupation!"
An Israeli army statement said the attack was launched at "a vehicle loaded with rockets and carrying a terror cell en route to launch at Israel".
A spokeswoman said that the van was "loaded with Katyushas".
Katyushas have a longer range than the homemade rockets that are usually launched from Gaza.
Witnesses cited by the Reuters news agency said they saw rockets in the back of the yellow van.
The upsurge in violence follows the deaths of eight Palestinians on a beach in Gaza on Friday.
After those deaths, the militant group Hamas, which heads the Palestinian government, said it was breaking off its voluntary truce and launched rockets at Israel.
The beach explosion was blamed by Palestinians on Israeli shelling near the area where a family was enjoying a picnic.
However, Israeli officials say a military inquiry has ruled that Israel was probably not responsible and that the blast could have been caused by a mine planted on the beach by the Hamas government.
Both sides suggested that cross-border attacks would continue after Tuesday's air strike.
"Today we have said farewell to our martyrs and tomorrow Israel will say farewell to their dead," Islamic Jihad told Reuters.
Mr Peretz said: "We have been showing restraint due to the international storm caused by the incident on the Gaza beach - but no longer."