Palestinian medics said eight members of one family died in the strike, among them five children.
Israel said the attack targeted the home of Rasmi Abu Malhous, who it called a militant commander from the group Palestinian Islamic Jihad (PIJ).
It said no civilians were expected to be in harm's way.
The attack in Deir al-Balah, in central Gaza, was the deadliest episode in a two-day exchange of fire between Israel and the Palestinian group.
It took place on Thursday, shortly before a ceasefire came into effect.