Ten Palestinians were killed yesterday in an Israeli raid on a refugee camp in the Gaza Strip. Civilians were among the dead, although Palestinian sources said they believed the majority of victims were armed militants.

The Israeli incursion appeared to have set off a three-hour gun battle in the alleys of the Bureij refugee camp, a densely populated civilian area.

The Israeli army denied there were any civilian casualties. However, among the dead was one woman: Ahlam Kandil, a Palestinian teacher who worked in a United Nations school, who died of her injuries in hospital. Ms Kandil was a civilian, according to Palestinian sources.

Another UN worker who was killed was also thought to be a civilian. Osama Tahrawi worked as a school attendant in the refugee camp.

The deaths of two UN staff came two weeks after Iain Hook, a British UN worker, was shot dead by an Israeli soldier at his office in Jenin.

A UN official in Gaza, Christer Nordahl, said yesterday that as many as eight of the dead in the Bureij camp were unarmed civilians.

The mayor of the refugee camp, Kamal Baghdadi, said several members of one family had been killed when their house was hit by a shell.

Palestinian sources said they believed most of the dead were armed gunmen who had rushed to defend the camp when the Israelis raided it. The Israeli army said a helicopter had fired a missile into a street, killing five militants from the Hamas organisation.

Around 25 Israeli tanks and armoured vehicles stormed the camp just after midnight local time (10pm GMT), firing as they advanced and backed by helicopter gunships.

The Israeli army said it was hunting a Palestinian militant. Raids of this sort into civilian areas have become frequent in the Gaza Strip recently.

The Israeli army makes brief incursions in attempts to assassinate or capture senior militants and demolishes houses that it says belong to militants or their families.

Palestinians were celebrating the feast of Eid al-Fitr, the end of Ramadan, and when they heard about the incursion, armed fighters rushed into the streets to fight the soldiers, witnesses said.

Announcements went out over mosque loudspeakers calling people onto the streets to defend the refugee camp.

"We came upon a lot of resistance and the forces fired at armed gunmen," said Brigadier Yisrael Ziv, the Israeli army's local commander.

"We identified 12-14 at whom we fired. At times the battle was fought at very close range, 10 metres. They used Kalashnikov rifles and grenades and anti-tank shells." A 20-year-old resident of the camp, Mohammed al-Maqadama, said: "It was as if the doors of hell were opened in our camp by the helicopters and the tanks."

The Israeli army said the raid had targeted Ayman Shasniyeh, a local leader of the Popular Resistance Committee, a small militant group particularly active in the Gaza Strip, who is believed to be responsible for destroying an Israeli tank in March.

Three soldiers were killed in that attack.

The army failed to catch Mr Shasniyeh but demolished his house and said it had arrested one of his brothers.

The soldiers demolished four buildings inside the camp, leaving about 70 people from seven different families without homes.

One of the demolished buildings appears to have belonged to the family of a dead suicide bomber. The reasons for demolishing the others were not clear. The Israeli authorities claim they demolish the homes of militants as a deterrent, to prevent attacks.

International human rights groups have condemned the practice of demolition as "collective punishment", outlawed under the Geneva Conventions, because the families are punished for their relatives' crimes.

"They have made this a bloody Eid," said Mr Maqadama, the Bureij resident. There was anger from Palestinians that the raid had come during Eid al-Fitr, one of the two most important festivals in the Muslim calendar.

Sharon Feingold, an Israeli army spokeswoman: "We go after [militants] whenever we have intelligence. They don't respect our holidays. They attacked on Passover."

Thousands of mourners gathered for the funerals of the dead yesterday, many of them chanting "revenge, revenge". "We are committed to the jihad until our land is liberated," Hamas members shouted through loudspeakers.

The immediate fear now will be of militant attacks on Israelis in retaliation.