A top Hamas leader was killed early Tuesday morning when an Israeli air-to-surface missile destroyed his Gaza City apartment building, scuttling tentative steps toward easing Israeli-Palestinian tensions that had been made in the past few days. 

Hamas said that Salah Shehadeh, the 48-year-old senior commander of Izzadine el-Qassam, the Islamic fundamentalist group's military wing, had been killed along with his wife Leileh, their 14-year-old daughter Iman, a bodyguard and at least 11 other people, including eight children. 

Hamas, of which Shehadeh was a founder, has carried out more terrorist attacks on Israelis and Jewish settlers than any other Palestinian group. 

"This operation was in my view one of our biggest successes," Israeli Prime Minister Ariel Sharon told Cabinet ministers. "We hit perhaps the most senior Hamas figure on the operational side," Sharon said of Shehadeh, who was jailed first by Israel, and then by the Palestinians, from 1988 to 1999. 

The prime minister added that Israel had "no interest in harming civilians" in the attack. Defense Minister Binyamin Ben-Eliezer issued a statement saying that "the information which we had was that there were no civilians near [Shehadeh]." 

Palestinian leaders retorted that by firing a powerful missile into a densely packed neighborhood in the middle of the night, civilian casualties were a certainty. 

"This is a war crime that is aimed at destroying all efforts to return stability to the region," Palestinian Information Minister Yasser Abed Rabbo said. "We warned the Israeli government against attacking civilians. The Israeli government is playing with fire." 

Since his release by the Palestinian Authority, Shehadeh had spent much of his time in hiding in the Gaza Strip, where Hamas is strongest. He was responsible for setting policy for attacks and giving orders to militants who carried them out, Israel said. 

The attack took place around midnight, leaving the apartment building a pile of smoldering rubble. Bedding, kitchen utensils, clothes and children's toys were strewn about in the debris. Hundreds of residents in the area dug through rubble during the night, searching for survivors. 

"Hamas mourns the hero, the leader, Salah Shehadeh," said Hamas spokesman, Ismail Haniyeh. "Anyone who dreams of so-called peace is mistaken." 

Shifa Hospital in Gaza City released a separate list of 11 dead, that included eight children, aged 2 months to 11 years, and three adults. The hospital also said that more than 100 people were wounded. 

"The Palestinian people will not forget the blood of the martyrs," said Hamas' spiritual leader Sheik Ahmad Yassin. "We will let deeds speak." 

In other violence, five Palestinian militants were killed in clashes with the Israeli army, bringing the overall Palestinian death toll for the day to 20. 

Two Palestinians were killed during an exchange of fire Tuesday morning on the edge of the Gaza Strip, the army said. The militant group Islamic Jihad said its members carried out the attack. 

Near the West Bank city of Nablus, three Palestinian gunmen, disguised in Israeli military uniforms, died in a gun battle, the army added. 

In nearly 22 months of Mideast fighting, more than 1,780 people have been killed on the Palestinian side and 778 on the Israeli side. 

The latest violence comes amid Israeli-Palestinian efforts to ease tensions in the West Bank. Israeli troops have occupied seven Palestinians cities and towns for more than a month, a response to earlier Palestinian attacks. 

Hamas hinted on Monday that it would consider halting suicide bombing attacks if Israel pulled out of the Palestinian areas. However, the missile attack ended any such prospect. 

The Israeli daily Haaretz reported Monday that the Palestinians had outlined a proposal to resume security cooperation if Israel withdraws troops from the Palestinian areas in the West Bank. 

Security cooperation, in which the sides share information and act jointly where possible to prevent attacks, ground to a halt after fighting erupted in September 2000. 

Palestinians would undertake to confiscate illegal weapons and arrest militants, Haaretz reported. In return, the newspaper said, Israel would free prisoners arrested in the fighting, end its strikes on Palestinian targets and halt its "targeted killings" of militants — the type Israel carried out in Gaza City. 

The proposal was similar to a deal worked out last summer by CIA director George Tenet that was never implemented as the violence escalated. 

Ranaan Gissin, spokesman for Sharon, said Israel wouldn't make any concessions before the Palestinians moved to end attacks. 

Palestinian officials have demanded that Israel withdraw from the West Bank towns, saying they can't prevent attacks against Israelis as long as the Israeli army is in place, enforcing curfews and hunting down militants. 

The Associated Press contributed to this report.