Israeli aviation killed a man driving his family to safety in central Rafah, and attacked the Palestinian Interior Ministry, suspected of covering up Islamic militants, and several other buildings in the center of the city.
Eyewitness reports cited by local media suggested not all casualties had been reported, as many wounded could have been taken to private hospitals.
Earlier, an Israeli armored unit crossed the border of the Gaza Strip for the first time in six months and entered the Palestinian enclave, which has been torn by turf wars between the rival Palestinian factions Fatah and Hamas.
However, the Israeli Army denied suggestions that it was embarking on a ground operation in retaliation for Palestinian rocket attacks on southern Israel in the past few days.
"There are only a few tanks there, deployed near the border and not attacking anyone. This must not be treated as an invasion," an Army official said, adding the armored group was on "a terrain reconnaissance mission."
This statement came in the wake of an announcement from the Israeli government that the country had abandoned its policy of 'restraint' toward Palestinian militants and would retaliate against the scores of improvised Qassam rockets being fired from Gaza into its southern city of Sderot in an apparent attempt to drag Israel into the conflict.
Palestinian militants continued their rocket attacks despite a truce, the fourth since the beginning of violence, declared by Hamas unilaterally Wednesday after the death toll reached 40.