One of the dead was five year old Rajaa Abu Shaban and another child is in a critical condition.
An Israeli gunship fired at least one missile on the site, which lies in the Al-Zarqa neighbourhood of Gaza City.
The Israeli military says it targeted insurgents who were planning an attack.
"The site was used by terrorists making preparations for terror activities against Israeli targets," an army spokesman said.
Two of the dead have been identified as a members of the Popular Resistance Committees, a militant coalition that has played a leading role in cross-border rocket attacks into Israel.
Annan alarmed
UN Secretary General Kofi Annan has expressed his alarm that the Lebanese situation has distracted attention from "utterly unjustifiable" deaths in Israeli strikes on the Palestinian territories, a spokesman said.
"The secretary general is greatly concerned that the tragic events in Lebanon and northern Israel should not distract from the urgent need to work towards a solution to the current crisis in the occupied Palestinian territory," said spokesman Stephane Dujarric.
"The continued killing and injuring of hundreds of civilians, including children, in Gaza, by Israeli forces is utterly unjustifiable," the spokesman added.
Mr Annan "also reiterates his call for a cessation of the rocket attacks from Gaza, which have indiscriminately targeted Israeli civilians."
Gaza-Egypt crossing reopens
The Rafah border crossing between the Gaza Strip and Egypt has reopened for humanitarian cases after a seven-week hiatus, officials at the terminal said.
"As a result of an agreement negotiated by the European Union Border Assistance Mission (EUBAM) between the government of Israel and the Palestinian Authority, the Rafah crossing point opens today," EUBAM said in a statement.
The terminal will be open from 8:30 am to 8 pm every day "to allow
crossings for humanitarian reasons from the Gaza Strip to Egypt only," it said.
The crossing is Gaza's only gateway to the world that bypasses Israel.