United Nations officials say two children, aged five and seven, were killed when Israeli tank fire hit a UN school where hundreds had taken shelter in the northern town of Beit Lahiya.
John Ging, the Unrwa chief in Gaza, told the BBC that there was "nowhere safe in Gaza".
"I'm ashamed of this - there's international legal responsibility to protect civilians in conflict, and we're not doing it," Mr Ging said.
"We're failing here, we're failing and there has to be accountability for that failure."
Mr Ging's spokesman earlier said an investigation ought to be held to ascertain whether any war crimes had been committed in the incident.
An Israeli foreign ministry spokesman, Yigal Palmor, told the BBC that Israel was waiting for more information on what happened.
"We don't have an exact description of exactly when, where or what was fired and where the shells had struck," he said. Accurate details would be established once the fighting ended, he added.
This is not the first time the UN has talked about war crimes in Gaza.
Earlier this month, UN High Commissioner for Human Rights Navi Pillay said some Israeli actions reported in Gaza might warrant prosecutions for war crimes.
Israel's security cabinet will vote on Saturday evening on whether to declare a ceasefire, after its government said it thought "significant progress" had been made at talks with Egyptian mediators in Cairo.
Israeli warplanes bombed Gaza before dawn on Saturday
Under the Egyptian proposal, fighting would stop immediately for 10 days and Israeli forces would remain in Gaza while the border crossings into the territory would remain closed.
For its part, Egypt would, with international help, try to shut down weapons smuggling routes on its boundary with Gaza and discussions on opening the crossings would take place at a later date.
Hamas insists any ceasefire must involve Israeli troops withdrawing from Gaza and an immediate lifting of the Israeli blockade. Hamas officials are expected to attend further talks on Saturday in Cairo.
Israel is still coming under rocket attack from militants in Gaza
On Friday Palestinian militants in Gaza reportedly fired more than 15 rockets at southern Israel, leaving five Israelis wounded.
Israel's main objective in Operation Cast Lead is to end Gaza militants' ability to fire rockets at Israel and stop them smuggling through tunnels from Egypt.
On Friday, Israel and the US signed a deal in Washington that calls for expanded intelligence co-operation between their two countries to prevent Hamas smuggling arms into Gaza if a ceasefire is implemented.
Under the agreement, the US will provide detection and surveillance equipment, as well as logistical help and training to Israel, Egypt and other nations for monitoring Gaza's land and sea boundaries.
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