Palestinian medics in Khan Younis said the Israelis fired phosphorus shells at Khouza, east of the southern city, killing a woman and causing at least 60 people to suffer gas inhalation and burns.
"These people were burned over their bodies in a way that can only be caused by white phosphorus," said Dr Yousef Abu Rish.
Human Rights Watch said its researches observed multiple shell-bursts of white phosphorus on 9 and 10 January near Gaza City and Jabaliya refugee camp.
There is no way independently to explain the contradiction between the Israeli military's denial and claims by Dr Abu Rish as well as other Palestinian doctors and HRW.
Israel has prevented international journalists from entering the Gaza Strip during its bombardment.
Gaza has been bombarded with shells that light up the night sky
HRW cited numerous photos and video of the Israeli bombardment appearing to show the characteristic outline of white phosphorus shells.
It acknowledged the weapons appeared to have been used legally to make smoke screens to hide troop movements, but warned of the risk to Palestinian civilians.
"White phosphorus can burn down houses and cause horrific burns when it touches the skin," said Human Rights Watch analyst Marc Garlasco.
The Israeli army said operational secrecy prevented disclosure of its weaponry, but emphasised it "only employs weapons permitted by international law".
White phosphorus sticks to human skin and will burn right through to the bone, causing death or leaving survivors with painful wounds which are slow to heal.
The international convention on the use of incendiary weapons says it should not be used where civilians are concentrated.
The US military in Iraq admitted using white phosphorus as a weapon in the assault on Falluja in 2004 - after initial denials, although it insisted the use was legal.
Afterwards, officials for the Organisation for the Prohibition of Chemical Weapons stressed white phosphorus use was permissible only if it was to produce smoke.
However, if its "toxic or caustic properties" are specifically intended to be used as a weapon, it would be considered a chemical rather than incendiary weapon and therefore would be banned.
The Israeli military has used phosphorus shells in the past, during its bombardment of Lebanon in 2006.
Minister Jacob Edery told the Israeli parliament after the 2006 war: "The [Israeli Defence Forces] holds phosphorus munitions in different forms... [and] made use of phosphorus shells during the war against Hezbollah in attacks against military targets in open ground."
The Israeli military was strongly criticised for some of its tactics in 2006, including the widespread use of cluster munitions in the final hours before a ceasefire came into effect.
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