An Israeli helicopter fired three missiles at an unoccupied part of the surrounded Rafah refugee camp on the Gaza-Egypt border early on Tuesday, killing three people.
Hospital officials said at least two were militants, and seven civilians were wounded.
The Israeli military said the target was a group of armed Palestinians approaching Israeli forces.
Israeli bulldozers began levelling land in an Israeli-controlled area next to the camp, shortly after the strike.
Israeli tanks and troops have surrounded the camp, cutting it off from the rest of Gaza.
On Monday, residents were fleeing the camp, expecting a large-scale Israeli operation.
Israel Radio reported that troops were prepared to fight from house to house in the camp.
Israeli forces have entered the camp many times during more than three years of conflict, looking for tunnels they allege the Palestinians use to smuggle in weapons under the Egyptian border.
Last week Palestinians blew up an Israeli armoured vehicle on the border road next to the camp, killing five soldiers, leading Israel to declare that it would widen the buffer zone by tearing down houses in the camp.
