The violence - at a time of increased tensions between rival Palestinian factions - came as an armed group linked to President Mahmoud Abbas' Fatah party rescued a US student abducted by rival militants in the West Bank.
The five killed in the southern Gaza Strip belonged to the same family - bystanders 13-year-old Suheib Iqdah, his 40-year-old father Adel, and three militants from the military wing of ruling Islamist movement Hamas.
They died after an Israeli aircraft fired a missile into a group of people in Abassan, near the town of Khan Younis, medical and security sources said.
Another eight Palestinians were also wounded, including people brought in overnight during exchanges of fire with Israeli ground troops who pushed into the territory a short distance across the border from the Jewish state.
The Israeli military confirmed the airstrike and the launch overnight of a ground operation targeting "against tunnels and other terror infrastructure" in the Khan Younis area, saying that its troops had come under fire.
"During that operation overnight there were several occasions in which gunmen opened fire on the forces. The forces returned fire and in all identified hitting six gunmen," a spokesman said. "Other than that, there was an air force attack on a group of four armed gunmen who were identified approaching the forces and we identified hitting those gunmen," the spokesman added.
The Ezzedine Al Qassam Brigades announced that three of its militants - all aged 23 - were killed in a direct hit when a "Zionist helicopter" fired a missile as they "confronted an incursion by occupation forces."
Since June 28, Israel has waged a prolonged offensive in Gaza with the stated goals of retrieving a soldier captured by militants, including those from the Ezzedine Al Qassam, and stopping rocket attacks on its territory.
A UN special envoy for human rights, John Dugard, has accused Israel of unleashing "collective punishment" in the territory, declaring last month that some 260 Palestinians had been killed and 800 injured in the operation.
Thursday's deaths bring to 5,419 the number of people killed since the second Palestinian uprising, or intifada, broke out in September 2000, the vast majority of them Palestinians.
In the West Bank, a Fatah official said that the armed group Al Aqsa Martyrs Brigades had freed a US student seized by other militants and delivered him to a member of the Abbas-headed Palestine Liberation Organization.
"Men from the Al Aqsa Martyrs Brigade released the American student who had been taken hostage in Nablus this evening and he is now safe and sound and in a safe place," said Fatah official Jamal Tirawi. "There were exchanges of gunfire with the hostage-takers but the student was rescued and handed over to Ghassan Al Shaka, a member of the executive committee of the Palestinian Liberation Organization," he added.
On Wednesday, the relatively unknown Ansar Al Sunna movement said that it had taken Michael Phillips hostage in Nablus, sending security officials a fax of his passport and student ID card.
A masked man who said that he belonged to Ansar Al Sunna in Khan Younis said that the abduction was a response "to the war on Islam and Muslims."
Palestinian tensions have soared recently amid deadlocked efforts to form a national unity government as a means to ending unprecedented financial and political crisis since Hamas formed a government last March.
The Islamist movement has stubbornly rejected immense pressure from Abbas and the international community to accept a political program that amounts to recognition of Israel and past Israeli-Palestinian agreements.
© 2006 Agence France-Presse
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