The army was checking the report by Palestinian hospital officials.
Reuters reports a man, a woman and the children were in the building hit by the blast, while another 15 people were wounded, while AFP reported 30 were wounded.
The explosion occurred as Israeli warplanes flew overhead, according to the Reuters report.
The house is in an area known as a stronghold of the governing Hamas Islamist movement, but neighbours said the owner was not known to be part of the group.
Rescue teams were trying to find other victims under the rubble. Three other nearby houses were seriously damaged in the attack.
As ambulances were evacuating the victims, Apache helicopter gunships attacked a car, wounding or killing several passengers, a Palestinian security official said.
Major incursion into Gaza
Earlier, the Israeli army made a large-scale incursion into the centre of the Gaza Strip, reportedly shooting dead a Palestinian policeman.
The deadly offensive has killed more than 50 Palestinians in a week.
A Palestinian security officer was killed and six people wounded in Israeli air strikes hitting northern Gaza, medical sources said.
The raids came just one day after nine Palestinians died from Israeli fire around the Gaza Strip.
A 12-year-old boy who was wounded in an air strike on July 6 died of his wounds, bringing to 52 the number of Palestinians killed in the operation, on top of one Israeli soldier killed by friendly fire.
Israeli Prime Minister Ehud Olmert has defended the scale of the operation, aimed at securing the release of a captive teenage soldier and halting rocket attacks, despite international criticism that the force has been disproportionate.
He has flatly refused to negotiate with Hamas or free Palestinian prisoners in exchange for 19-year-old Corporal Gilad Shalit, vowing the assault will continue "in places, in time, in measures" at Israel's convenience.
In an opinion piece in the Washington Post, Mr Haniya, whose Gaza offices have been bombed, said freeing Corporal Shalit "is only a pretext for a job scheduled months ago."
"Surely the American people grow weary of this folly, after 50 years and 160 billion dollars in taxpayer support for Israel's war-making capacity," Mr Haniya wrote.
Military to continue offensive
Despite the mounting death toll, defence sources said the government had given the military authority to continue, and if necessary, intensify the offensive, with infantry and armour poised to carry out "in-depth" incursions.
Approval was granted during consultations late on Monday between Mr Olmert and Defence Minister Amir Peretz.
Palestinians in northern Gaza yesterday fired a homemade rocket against Israel, causing no casualties or damage.
Israeli troops are massed on the eastern and northern borders of the densely populated Gaza Strip, as well as stationed east of Gaza City and in the south near an airport destroyed by the military several years ago.
In a statement issued after his weekly cabinet meeting, Mr Haniya warned against a "humanitarian tragedy" developing in Gaza as a result of Israel's continuing "blockade" of the impoverished territory.
Aid groups have also expressed concern about the difficulties of providing assistance to 1.4 million people living in Gaza following months of financial crisis and the suspension of direct Western aid to the Hamas-led government.
The European Commission has announced it is sending emergency fuel supplies to Gaza after the West cut direct aid to the Hamas-led government.
The fuel, welcomed by Haniya and the first aid to flow through the mechanism, was sent to public hospitals for use in generators after the Israeli airforce last week destroyed transformers at Gaza's sole power plant.
Japanese Prime Minister Junichiro Koizumi is due to arrive for separate talks with Mr Olmert and Mr Abbas, hoping to help calm tensions.
Mr Abbas meanwhile was in Jordan where he appealed for King Abdullah II's help in stopping the offensive. After the talks, the monarch warned against "tit-for-tat violence", saying it was ordinary Palestinians who paid the price.