At least 10 people have been killed in a strike near a UN-run school housing Palestinians displaced by the Gaza conflict, medics say.
The attack hit the entrance of the facility in Rafah, where thousands of Palestinians are said to be sheltering.
UN Secretary General Ban Ki-moon described the attack as a "moral outrage and a criminal act".
The Israeli military has not commented but has been carrying out renewed strikes in Gaza.
Israeli media reports say most troops have left Gaza, though there is no official order to end the operation.
Military spokesman Lt-Col Peter Lerner said troops were "in the midst of a redeployment to other parts of the border", adding that troops were being released from the front line.
But he said the mission was ongoing and ground forces were operating.
Gaza health officials say 30 people have died on Sunday, while militants continue to fire rockets into Israel.
The latest exchanges came after Israel's military said that an officer it feared had been captured had now been confirmed dead. Hadar Goldin went missing on Friday near Rafah, in the south of the Gaza Strip.
His funeral was held in the Israeli town of Kfar Saba on Sunday afternoon.
Confirmation of 2nd Lt Goldin's death means 66 Israelis have now died in the fighting, all but two of them soldiers. A Thai worker in Israel also died.
The latest official figures from Gaza's health ministry say that more than 1,750 Palestinians have been killed and more than 9,000 injured since the conflict began more than three weeks ago.
The UN warned that a "health disaster of widespread proportions" is unfolding in Gaza, with medical services facing collapse.
Analysis: Martin Patience, BBC News, Gaza
There does seem to be some sign of Israeli forces withdrawing in some parts of the Gaza Strip, particularly in the northern part. Residents in one neighbourhood, Beit Lahiya, have been told they can go back.
One man there told me about 20% of families had returned. They'd been evacuated at the start of this conflict as people were fleeing the bombing and shooting. People were saying militants were using that area to launch rockets into Israel.
I asked one man whether or not he felt safe. He said he thought the situation wasn't safe, but people were phoning him to ask whether or not they should come back. He was telling them they should.
He said the reason for that, in his own words, was: "I would rather die in my own home than in a UN school".
Analysis: Bethany Bell, BBC News, Jerusalem
Senior Israeli officials say that their target to destroy the cross-border tunnels is almost complete.
And with the news that the Israeli soldier missing since Friday is dead, there will be far less public pressure on the Israeli government to leave its troops on the ground.
Israel, for now, seems to be ignoring international pressure to negotiate a ceasefire, although it hasn't ruled out a possible diplomatic solution.
And there is little sign that Israel is prepared to start tackling the underlying causes of the conflict, such as the crippling economic blockade on Gaza, and Israel's tight control of its airspace and most borders.
Unless that happens, it is feared that another round of violence is simply a matter of time.
The latest attack on a UN facility follows the shelling of a Jabaliya shelter last week, which killed 16 people. That drew widespread international condemnation.
In the latest incident, eyewitnesses said a missile struck as people queued for food.
In a strongly worded statement, Mr Ban called for those responsible for the "gross violation of international humanitarian law" to be held accountable.
At least 30 people were also hurt, Palestinian officials said. Images showed injured children being carried away.
Robert Turner, director of operations for the UN Palestinian refugee agency in Gaza, said: "The locations of all of these installations have been passed to the Israeli military multiple times.
"They know where these shelters are. How this continues to happen, I have no idea."
On Sunday, Israel said its forces were withdrawing from some areas of Gaza to a "temporary security strip" to reassess operations.
Reports said the military was close to completing its main aim of destroying tunnels used by militants to infiltrate Israel.
However, PM Benjamin Netanyahu warned Israel would continue its offensive, saying it would "do whatever it must do to protect its people".
Hamas spokesman Fawzi Barhoum said the group would "continue to resist until we achieve our goals".
Delegations from Hamas, which controls Gaza, and Islamic Jihad arrived in Cairo on Sunday for talks with Egyptian and US officials over a possible truce.
However, Israel has said it will not attend the talks.
Separately overnight, Israel said DNA evidence confirmed that Lt Goldin had died.
Israel's Defence Minister Moshe Yaalon and the chief military rabbi met the soldier's family at their home in Kfar Saba on Saturday night.
It was revealed on Sunday that Mr Yaalon was a distant relative but that this had been concealed in case it could be used by Hamas if Lt Goldin were being held captive.
Mr Yaalon said: "Hadar Goldin... was a member of my family. I've known him since he was born."