An Israeli army spokeswoman said soldiers fired warning shots toward an abandoned building, not the crowd, to try to stop about 3,000 demonstrators heading toward the Rafah refugee camp, where Israel has launched an offensive to destroy arms-smuggling tunnels.
But witnesses said that at least one large explosion went off in the crowd that had gathered to protest an Israeli raid. Associated Press Television News footage showed the protestors marching along a wide street when an explosion went off in their midst. White smoke rose as Palestinians carried the wounded from the scene.
Dr. Moawiya Hassanain, a senior Palestinian Health Ministry official, said 23 of the wounded were in critical condition and another 13 were in "hopeless" condition. All of the dead and most of the wounded were younger than 18, he said, according to the Associated Press.
Brig. Gen. Ruth Yaron, an Israeli army spokeswoman, said Israeli forces fired machine guns and four tank shells into an abandoned structure. "At this stage, it's possible, that's our assessment, that there were casualties as a result of the tank shells that were fired," the AP quoted her as saying.
Israel is reportedly considering breaking off its offensive, dubbed "Operation Rainbow," in the Rafah camp because of Wednesday's strike. The offensive has drawn international condemnation.
The incursion -- the largest in the Gaza Strip in years -- came less than a week after Palestinian militants killed 13 Israeli soldiers, including seven in the Rafah area.
In Washington, the Bush administration said it was "very concerned" about Wednesday's strike.
"We have asked the government of Israel for the facts about what happened today," said White House spokesman Scott McClellan. "We will continue to follow this closely and we urge all parties to exercise maximum restraint."
British Prime Minister Tony Blair condemned the Gaza offensive as "unacceptable and wrong," while Spanish Prime Minister Jose Luis Rodriguez Zapatero criticized Israel's tactics and urged a new commitment to the U.S.-backed "road map" peace plan, the AP reported.
Israeli defense sources said senior officers, including the chief of staff, were in an emergency meeting to investigate the incident.