United Nations Secretary-General Kofi Annan has condemned an Israeli missile attack in the Gaza Strip that killed at least two Palestinians and wounded about 40 others.

Annan issued a firm statement on Thursday's events

Mr Annan called on Israel to halt military action in densely-populated areas, and said he was deeply concerned about the possible consequences of the attack.

Israeli security officials initially said they believed the missile attack on a car in Gaza City had killed a senior figure in the militant Palestinian group Hamas, Mohammed Deif, although Palestinian sources denied that he had died.

On Friday, an Israeli cabinet minister said he had received reports that Mr Deif had been injured but had not suffered a life-threatening injury.

"The secretary-general deplores the Government of Israel's military action today in Gaza City," said his spokesman.

"He calls on the Government of Israel to halt such actions and conduct itself in a manner that is fully consistent with international humanitarian law."

Revenge call

The two confirmed dead were both members of Hamas.

Israeli television reported that Mr Deif was killed, but Hamas leaders insisted he was still alive.

He escaped a similar Israeli attack last year, when he jumped out of a car seconds before it was struck by a missile.

Witnesses said a car received two direct hits in the attack in a crowded area of Gaza City.

According to Hamas officials, an aide of Mr Deif, Abdel-Rahim Hamdan, was killed along with a second as yet unidentified man.

Hamas has vowed to step up suicide bombings inside Israel to avenge the attack.

The strike occurred in the Sheikh Radwan neighbourhood - a Hamas stronghold in the north of Gaza City.

The Israeli PM says the siege in Ramallah is justified

The BBC's correspondent James Rodgers says Israeli helicopters were heard in the skies over Gaza at around lunchtime.

"Suddenly we heard the sound of a big explosion," said Mohammed Hajar, a hairdresser working in the area.

"When I ran out, a second explosion took place."

A large crowd gathered at the scene as rescue workers led the wounded to ambulances.

Palestinian officials say several children were among the wounded.

The latest violence brings Thursday's death toll to seven.

Earlier in the West Bank, a 14-month-old Palestinian baby died after inhaling tear gas fired by Israeli soldiers enforcing a curfew in Hebron.

The International Red Crescent organisation says this is thought to be the first time a child has died of tear gas inhalation during the current violence.

Siege defended

Four other people died in clashes across the Palestinian territories on Thursday, including an Israeli officer killed in a gun battle.

The army officer died near the northern West Bank town of Tulkarm in an exchange of fire in which a member of Hamas was also killed.

Also on Thursday, Prime Minister Ariel Sharon defended Israel's siege of Palestinian leader Yasser Arafat's compound.

He said wanted men holed up inside the compound are "the biggest terrorists that exist".

Israeli forces invaded and started destroying the compound on 19 September following two suicide bomb attacks in two days.