Israeli Prime Minister Ariel Sharon apologised for an attack on a refugee camp in which a four-month-old girl was killed.
Israeli troops had shelled the Khan Yunis refugee camp, in the Gaza Strip, in response to mortar fire on Jewish settlements.
Doctors said 10 children were hurt.
Mr Sharon said his troops did not intend to harm children.
"Children and babies should not be involved in this terrible war that we would like one day to finish," he said.
In a speech to parliament, Mr Sharon said sorry for the death of the baby, but accused the Palestinian Authority of active involvement in attacks on Israelis, as well as weapons' smuggling. He said he would not resume peace talks under fire.
The latest fighting began when Palestinians fired four mortar shells at two Jewish settlements in the Gaza Strip, without causing injuries. In response, Israeli tanks shelled buildings in the Khan Yunis refugee camp and troops fired large-calibre machine guns.
One shell hit the shack of the Hijo family in the camp, instantly killing four-month-old Iman Hijo, with shrapnel tearing a hole into the infant's back.
The girl's 19-year-old mother, as well as three children belonging to the extended family, were wounded.