Israeli troops backed by tanks and helicopter gunships hunted a fugitive militant in a crowded refugee camp in the Gaza Strip early Friday, setting off chaotic gunbattles that killed 10 Palestinians, including two U.N. workers.

Men called through mosque loudspeakers for people join the battle against Israeli soldiers, who entered the camp just after midnight. Fighters who had been celebrating the Islamic festival of Eid el-Fitr, which marks the end of Ramadan, poured into the dark streets. Gunbattles raged for three hours in the Bureij camp.

It was unclear how many of the dead were fighters. The military said a helicopter fired a missile into a street, killing five armed men from the violent Islamic Hamas movement. The camp mayor, Kamal Baghdadi, originally said a tank shell hit a building, killing seven people.

Ahmed Rabah, a doctor at the Al-Aqsa hospital in the nearby village of Deir el Balah, said nine people were killed and 11 were wounded. An official at Shifa Hospital in Gaza City said a tenth person, a woman, died of injuries.

The U.N. agency helping Palestinian refugees, UNRWA, said two of its staff members were among the dead: Osama Hassan Tahrawi, a 31-year-old school attendant, who was killed along with two of his brothers by a missile; and the woman who died from shrapnel injuries, Ahlam Riziq Kandil, a 31-year-old elementary school teacher.

Hassan Safi, 49, said he was in his home 300 yards away when an explosion rocked the neighborhood. He said he thought the blast was from a tank shell.

"I rushed with my sons to the place, which was all destroyed," Safi said. "I myself took out two people. The helicopter was firing with machine guns at us, making it difficult to move."

During the incursion, witnesses said troops surrounded the home of Jamal Ismail, a suicide bomber who blew himself up along with another man in an explosives-packed boat off the Gaza coast last month, wounding four Israeli soldiers in a nearby navy patrol.

The Israeli army called the camp "a base for hardcore terror groups" of the militant Hamas, Islamic Jihad and Popular Resistance Committee.

Brig. Gen. Israel Ziv said the operation targeted Aiman Shasniyeh, a local leader for the Popular Resistance Committee, who the military believes was behind a bomb attack on a heavily armored Merkava-3 tank that killed three soldiers in March.

Troops failed to find Shasniyeh but blew up his house. Soldiers arrested one of his brothers, along with another man wanted by Israeli intelligence, Ziv said.

It was Israel's second strike this week in Gaza targeting militants allegedly involved in attacks on tanks that have killed seven Israeli soldiers this year.

On Wednesday, Israeli helicopters blasted a Palestinian government guardhouse in Gaza City with missiles, killing Mustafa Sabah, 35. According to sources in the Popular Resistance Committee, Sabah masterminded the attacks on the tanks and helped invent the powerful roadside bombs used.

Troops approaching Shasniyeh's house came under withering gunfire from nearby homes and on the street in what turned into a close-quarters gunbattle in the camp's narrow alleyways, said army spokeswoman, Capt. Sharon Feingold. One soldier was lightly wounded by gunfire, she said.

Helicopter gunships fired machine guns from above.

Palestinian leader Yasser Arafat was outraged by the attack.

"Every day there is a new massacre," he told reporters outside of his office in the West Bank city of Ramallah. "Every day there is destruction. Every day there is more damage. Every day there are more arrests and every day there are more assassinations."

An aide to Arafat, Nabil Abu Rdeneh, said the Palestinians would call on the United Nations Security Council to hold a special session on the violence and to consider sending international observers to the region.

Thousands turned out for funerals held at noon prayers Friday for those killed. The bodies, wrapped in white cloth or blankets, were carried through crowded streets in open coffins painted with the Palestinian flag. Armed militants wearing fatigues and ski masks fired automatic weapons into the air.

The deaths of the two U.N. staff members followed the shooting of U.N. aid worker Iain Hook two weeks ago by Israeli soldiers — the first senior U.N. official to be killed during the current conflict. Israel said the soldiers mistook a cell phone he was holding as a weapon during a battle between the soldiers and Palestinian gunmen in the Jenin refugee camp.

In the West Bank and Gaza, UNRWA operates about 260 schools and about 50 clinics serving more than 1.5 million registered refugees and employing about 10,000 Palestinians.

A White House document obtained by The Associated Press on Thursday, in effect, blames the Palestinians for Mideast violence now moving into a third year, charging that the Arafat's Palestinian Authority and the PLO have not taken steps to stop militants.

The failure to stop militants has thrown into question the Palestinian Authority's acceptance of Israel, the 12-page report says.

Still, President Bush has decided not to impose sanctions, which could have included the downgrading or closing of the Palestine Liberation Organization office in Washington. A memorandum that prefaces the report, dated Nov. 29 and signed by Bush, waives sanctions, saying they would be against U.S. security interests and that the United States "must maintain contacts with all sides."

The memorandum was made public in Washington on Monday, but the remainder of the report was not. It was obtained by the AP in Jerusalem.

Palestinian Cabinet Minister Saeb Erekat told the AP that he had seen excerpts of the document. He called it "unfair and unacceptable."

The Palestinians blame Israel's military crackdown for fueling the violence. They also say Israeli military operations in the West Bank and Gaza Strip have decimated the Palestinian security forces and left them unable to stop militants.