The attack was targeted at the military leader of the radical group Hamas, Sheikh Salah Shahada, but many civilians were also killed, nine of whom were children.

About 140 people were injured in the strike

Palestinian leader Yasser Arafat said: "This was an ugly crime, a massacre that no one who is sane or who has a conscience can imagine."

The attack has been met with strong condemnation from around the world, including the United States, the United Nations and European Union.

US President George W Bush described it as a "heavy-handed" action which "does not contribute to peace".

But Israeli Prime Minister Ariel Sharon - who reportedly gave his personal approval for the air strike - expressed regret for the deaths of civilians but hailed the operation as "a great success".

Palestinian anger

About 300,000 people attended the funeral procession snaking through Gaza's streets.

A man held aloft the tiny body of a dead two-month-old baby wrapped in a flag, while masked men chanted: "Death to Israel! Death to America!"

After this crime, even Israelis in their homes will be the target of our operations

Abdel Aziz al-Rantissi, Hamas official

The BBC's James Reynolds reports from Gaza City that the mood there was very angry, with local residents accusing Israel of deliberately targeting children.

According to Israeli officials, the strike was a reaction to the death of dozens of Israelis in recent suicide attacks.

Hamas has warned it will retaliate for the death of Sheikh Salah Shahada, the founder of its military wing. He was reported to be number one on Israel's list of most wanted militants in Gaza.

Abdel Aziz al-Rantissi, a senior Hamas official said: "Hamas' retaliation will come very soon, and there won't be only just one (attack). After this crime, even Israelis in their homes will be the target of our operations."

International condemnation

UN Secretary-General Kofi Annan condemned the attack for exacting high casualties among civilians.

Shahada: Israel's number one target in Gaza

European Union foreign policy chief Javier Solana also warned the raid could hamper tentative moves to end the conflict.

"This extra-judicial killing operation, which targeted a densely populated area, comes at a time when both Israelis and Palestinians were working very seriously to curb violence," he said.

In an unusual move, the White House also strongly condemned the air raid.

"This was a deliberate attack on this site, knowing that innocents would be lost as a consequence," White House spokesman Ari Fleischer said.

"It is unfortunate that during war innocent people are being killed," said spokesman Gideon Meir.

"Here the problem is that the Palestinian terrorists are hiding and using the civilian population as a human shield."