Two Palestinian teenagers were killed and 17 people wounded when Israeli tanks opened fire during a riot in the Gaza Strip on Wednesday, reports say.

Palestinian medical sources and eyewitnesses said tanks opened fired in the town of Rafah in the south of the strip as a crowd threw stones at Israeli troops demolishing Palestinian homes.

Israel says its troops were fired upon in the clash which comes a day after a 12-year-old girl died during a gun battle in Rafah's refugee camp.

The south of the strip has seen fierce fighting since an Israeli incursion into the town of Khan Younis on Monday left 16 Palestinians dead and many wounded.

Palestinian sources named the two boys killed on Wednesday as Mohammed Mussa Ashwar, 15, and Ahmed Radwan, 14.

They were reportedly killed by fire from tank-mounted heavy machine-guns.

On Tuesday, Maisa Zannoun, 12, was killed when she went out onto the balcony of her house after hearing gunfire outside.

An Israeli post stands directly opposite the building and the army said they were returning fire after a gun and grenade attack by militants in the camp wounded two soldiers.

The BBC's correspondent in Gaza, James Rodgers, said the area is the scene of frequent clashes between the Israeli army and Palestinian fighters.

About 2,000 mourners followed Maisa's coffin on Wednesday, as calls went up for revenge.

It is unclear if Wednesday's clash was connected to the funeral.

US concern

Monday's violence in Khan Younis prompted the United States to make a rare appeal to Israel to launch an investigation, saying it was "deeply troubled".

"We are in touch with the Israelis to tell them that they have to examine their actions with great care, to avoid this kind of loss of life which does not further our efforts to find a peaceful solution," US Secretary of State Colin Powell commented.

Israel has vowed to press on with its military operations

"We are concerned about this level of civilian casualties and the consequences for this kind of activity."

Many of Monday's deaths were caused by a single missile launched by an Israeli helicopter.

Israeli Prime Minister Ariel Sharon has expressed regret over civilian deaths but described the operation as a success.

"We have to take into consideration that the Israeli forces are making every effort to contain raids and attacks by terrorist organisations," Mr Sharon said.

In an apparent response to the incursion on Tuesday, Palestinian militants shot and injured four Jewish settlers, one of them seriously, near the West Bank town of Hebron.

Crackdown on settlers

Israeli Defence Minister Binyamin Ben-Eliezer has announced a new campaign to remove illegal Jewish outposts in the West Bank.

The state of Israel has to decide if these people [settlers] are above the law

Weizman Shiri Deputy Defence Minister

Troops dismantled at least two uninhabited caravan sites and one of the minister's deputies, Weizman Shiri said that more "evacuations" would follow.

Mr Shiri told Army Radio that settlers were not only establishing illegal outposts but they were taxing the resources of the already overstretched security forces.

"The state of Israel has to decide if these people are above the law," he said on army radio.

On Tuesday the head of the International Committee for the Red Cross, Jakob Kellenberger, said that the humanitarian situation in the Palestinian Territories was at its worst since the territories were captured by Israel in 1967.

"The humanitarian situation has never been as bad as it is now," he said, warning that 50% of the population had fallen below the poverty line.