The Israeli military said the strike targeted a camp used by the Popular Resistance Committees (PRC), an umbrella group of militants that often fires makeshift rockets into Israel.
"There was an aerial attack on a training compound of the PRC while terrorists were training there," an Israeli military spokeswoman said.
Ghazi Hamad, Palestinian cabinet spokesman, told Reuters: "The crime (in Gaza) is a blood-soaked message sent by Olmert to the international community."
Palestinian medics named one of the dead as Juma Doghmash, brother of Mumtaz Doghmash, a PRC commander sought by Israel for attacks. Mumtaz Doghmash, regarded as a strong ally of Hamas, was not at the scene when the air strike took place.
The Israeli military has recently stepped up air strikes against militants as well as artillery barrages against what it says are rocket launch sites used by militants.
It was the first air strike since Israel's new government took office under Prime Minister Ehud Olmert.
Militants vow retaliation
Firing rifles in the air outside the morgue, militants vowed revenge against Israel.
"We will respond with waves of rocket firings into Israel and the Zionist settlements near Gaza," PRC spokesman Abu Sharif told Reuters.
Dim hopes for peace
Peace hopes remain dim since militant Islamist group Hamas took control of the Palestinian Authority in March after beating Palestinian Prime Minister Mahmoud Abbas's long-dominant Fatah movement in January's Parliamentary election.
Mr Abbas arrived in Gaza for talks with Palestinian Prime Minister Ismail Haniyeh, but officials said the meeting was likely to be postponed until tomorrow due to the violence.
He was expected to discuss Hamas adopting the 2002 Arab peace initiative, which offers Israel peace in return for land captured in the 1967 Middle East war.
It would involve Hamas recognising Israel.
Rows over security responsibilities between Mr Abbas's office and the government was also on the agenda.
Hamas is sworn to Israel's destruction and says talks with Israel would be a waste of time. The group refuses to disarm.
Mr Abbas spoke with Mr Olmert about trying to revive peace talks, senior Abbas aide Saeb Erekat said.
Mr Erekat added the leaders would meet when Mr Olmert returned from a trip to the US.
An official in Mr Olmert's office denied any meeting had been planned but said the two had spoken earlier.
A statement from Mr Olmert's office did not mention any discussion of peace talks.
Israeli officials have said Mr Olmert will visit Washington later this month where he is expected to present to President George W Bush his plans to impose Israel's final borders by 2010 if peacemaking with the Palestinians remains frozen.
Mr Olmert has said his coalition government would prefer peace talks with the Palestinians over unilateral moves.
But he reaffirmed Israel would not deal with a Palestinian Authority led by Hamas unless the Islamic group recognised the Jewish state and renounced violence.
Israeli officials have also questioned whether Abbas, a moderate who seeks a two-state solution to end the conflict, could deliver on any peace agreements with Hamas in power.
The new government continues to face diplomatic isolation and aid cuts from donors.