At least 18 Palestinians have been killed and 40 wounded by Israeli tank fire in the northern Gaza town of Beit Hanoun, Palestinian sources have said.
Water stained with blood filled the street where the shells landed
Palestinian officials said a barrage of tank shells hit civilian homes, and women and children were among the dead.
Israel has expressed regret for the civilian deaths and says it is investigating the incident.
Palestinian leaders have called for an emergency UN Security Council meeting to force Israel to stop military raids.
Later on Wednesday, at least one Palestinian was killed in an Israeli air strike on Gaza City, Palestinian security and medical source said.
Several others were reported to have been wounded in the missile strike.
The Palestinian prime minister, Hamas's Ismail Haniya, denounced the Israeli attack as an "awful massacre" and said talks on forming a Palestinian unity government would be suspended.
The shelling was condemned across Europe and the Middle East. The European Union expressed "profound shock", and the Organisation of the Islamic Conference accused Israel of war crimes.
Israeli Defence Minister Amir Peretz ordered the halt in artillery attacks and called for an urgent inquiry into the incident, while Prime Minister Ehud Olmert offered humanitarian assistance to the wounded.
Palestinian hospital officials said 13 of the dead belonged to the same family, and two of them were women and six were children.
The Israelis withdrew from the town on Tuesday following a major offensive centred in Beit Hanoun.
More than 60 Palestinians and an Israeli soldier were killed in a week-long operation that Israel says was aimed at stopping militant rocket fire into Israel from Gaza.
TV footage from Beit Hanoun showed the victims being taken to hospital in their nightclothes, some with terrible injuries.
FOUR MONTHS OF GAZA DEATHS
Total: 247 fatalities
155 civilian deaths
57 deaths of children
996 wounded, including 337 children (34%)
Source: Physicians for Human Rights (28 June to 27 Oct)
"It is the saddest scene and images I have ever seen. We saw legs, we saw heads, we saw hands scattered in the street," 22-year-old eyewitness Attaf Hamad told Reuters news agency.
Palestinian leaders announced three days of national mourning throughout the West Bank and Gaza Strip.
A local Hamas leader has called for the group to resume suicide bombings inside Israel, a policy suspended two years ago by the main militant factions.
"Israel should be wiped from the face of the Earth. It is an animal state that recognises no human worth. It is a cancer that should be eradicated," said Ghazi Hamad, a spokesman for the Hamas-led government.
Shots were fired at the European Union office in Gaza City in an apparent retaliation, Palestinian authorities said.
Israeli forces also killed a 17-year-old civilian near Jabaliya refugee camp, hospital officials in Gaza said.
Many of the dead were members of the same family
Earlier, in a separate incident, five Palestinian militants were killed in an Israeli army raid near the West Bank town of Jenin.
The deaths came as a US-based human rights group condemned the high number of Palestinian civilians killed by Israeli forces in the last four months.
Physicians for Human Rights said nearly 63% of the 247 fatalities from Israeli fire in Gaza between 28 June and 27 October were civilians and more than a third of those civilians were children.
Israeli officials repeatedly say the army takes care to avoid civilian casualties, but PHR said the shelling of densely populated areas in Gaza was tantamount to deliberately killing civilians.