The deaths come just hours after the Israeli cabinet approved a compensation package for settlers who will be forced to move from the area.
At least 24 other Palestinians, including civilians, were wounded when the Israeli army fired four air-to-ground missiles into the Khan Yunis sector.
A spokesman for the Israeli army says the attacks had targeted armed Palestinians who had approached Israeli forces.
He says that the military has stepped up its activities in the area following dozens of recent mortar attacks by Palestinians on Jewish settlements.
Violence has mounted in Gaza in recent weeks as the Israeli army attempts to crush Palestinian militants before a planned withdrawal of troops and settlers from Gaza next year.
Israel’s cabinet has approved a compensation plan for the settlers handing prime minister Ariel Sharon an important victory two days before a tense showdown in parliament over the pullout.
The compensation program was passed in cabinet by a 13-6 votes and gives Mr Sharon important momentum in the run-up to a far more important test tomorrow.
That is when the Knesset, or Israeli parliament, will vote for the first time on the entire withdrawal plan.
Mr Sharon also is expected to win that vote, but he needs a strong majority to marginalise his opponents.
“The train has left the station, the implementation is under way,” says government spokesman Raanan Gissin.
Even if Sharon wins the Knesset vote, parliament and the cabinet will have to vote at least once more on the plan.
The latest deaths raise to 4,526 the number of people killed since the second intifada began in September, 2000, including 3,496 Palestinians and 956 Israelis.