Gaza's Hamas-run civil defence says 11 people were killed, all from the same family, after the bus they were in was hit by an Israeli tank shell in northern Gaza.
The family, it said, were trying to reach their home to inspect it when the incident happened in the Zeitoun neighbourhood of Gaza City on Friday night.
This is the deadliest single incident involving Israeli soldiers in Gaza since the start of the ceasefire eight days ago.
The Israeli military said soldiers had fired at a suspicious vehicle that had crossed the so-called yellow line demarcating the area still occupied by Israeli forces in Gaza.
Israeli soldiers continue to operate in more than half of the Gaza Strip, under the terms of the first phase of the ceasefire agreement. Civil defence spokesman Mahmud Bassal told AFP news agency the victims were members of the Abu Shaaban family and were killed while trying to check on their home in the area. The dead included women and children, according to the civil defence.
The Israel Defence Forces (IDF) said a suspicious vehicle was identified crossing the yellow line and approaching IDF troops operating in the northern Gaza Strip on Friday, prompting it to fire warning shots towards the vehicle. It said the vehicle continued to approach the troops in a way that caused an imminent threat to them and troops opened fire to remove the threat, in accordance with the agreement. Hamas stated the family had been targeted without justification.
With limited internet access, many Palestinians do not know the position of Israeli troops as the yellow demarcation line is not physically marked, and it is unclear if the area where the bus was travelling did cross it. The BBC has asked the IDF for coordinates of the incident.
Israeli Defence Minister Israel Katz said on Friday the army would set up visual signs to indicate the location of the line. In a separate development, the Rafah border crossing between Egypt and Gaza will open for Palestinian residents in Egypt to return to Gaza.
The IDF has stressed that Hamas must uphold the agreement and take the necessary steps to return all the hostages. Hamas has blamed Israel for making the task difficult because Israeli strikes have reduced so many buildings to rubble.
As part of the US-brokered ceasefire deal, Israel freed 250 Palestinian prisoners. There has been anger in Israel over the returning of hostages' bodies not being fulfilled as agreed while the IDF continues to conduct military operations in the region.