JABALYA, Sept 30: Twenty-eight Palestinians and three Israelis were killed on Thursday, Gaza's bloodiest day for more than two years, as Israel's army struck back after a rocket attack killed two Israeli children in a border town.

In the single deadliest incident in a spiral of violence, an Israeli tank shell killed eleven Palestinians near a school in Jabalya, Gaza's largest refugee camp, as Israeli forces thrust deep into the militant stronghold for the first time.

Palestinian witnesses said the dead from the tank shell blast were all teenagers with no involvement in the heavy fighting that raged through the camp. "The explosion was so big it scattered body parts in nearby houses," a medic said.

While voicing regret for civilian casualties, a senior Israeli commander said a tank fired at armed men after they detonated a bomb that wounded several soldiers, and launched an anti-tank rocket at Israeli forces operating nearby.

Earlier, militants shot dead two Israeli soldiers and a woman jogger, and Israeli troops raiding northern Gaza killed 16 people, including militants and bystanders. The Israeli army's push into Jabalya came after Israeli Prime Minister Ariel Sharon ordered troops to use all means necessary to put a stop to rocket fire that has persisted despite repeated Israeli raids and air strikes.

A Hamas rocket attack on the southern Israeli town of Sderot on Wednesday killed two Israeli children, aged two and four, visiting their grandparents on the eve of the Jewish festival of Sukkot.

The latest cycle of bloodshed has sent Mr Sharon scrambling to counter rightist critics who say his plan to withdraw troops and settlers from occupied Gaza next year has emboldened militants trying to give the impression that Israel is being driven out.

Israel's army appears determined to smash militant groups before leaving. "The formula is clear - blood for blood, bombardment for bombardment," a Hamas militant said in Jabalya, where witnesses said armoured bulldozers had ploughed through houses to clear a path into the camp. -Reuters