It is the worst death toll in a single attack in the five-day campaign Israel claims is intended to stop Palestinian rocket fire into the Jewish state.
Israeli Prime Minister Benjamin Netanyahu had earlier assured world leaders the country was doing its utmost to avoid civilian casualties.
Gaza militants also launched dozens of rockets into Israel, targeting Tel Aviv for a fourth day.
The Jewish state's "Iron Dome" missile shield shot down two of the rockets, but falling debris hit a car which then caught fire.
Israel has signalled it is ready to stage a ground invasion of Gaza, but US President Barack Obama has warned against the move.