The tank and infantry raid sent a strong signal to a “Quartet” of US-led mediators and to the new Palestinian government that Israel would press ahead with such operations despite the new proposal to end 31 months of bloodshed.

Residents of the Shijaia neighborhood outside Gaza City said Israeli forces backed by helicopter gunships laid siege to the family home of a Hamas activist and demolished the four-story building after a fierce gunbattle.

Hamas and an armed offshoot of the Fatah faction claimed responsibility for a Tel Aviv suicide bombing that killed three people on Wednesday.

Arafat told reporters the pre-dawn Gaza incursion was a “massacre” and Israel’s answer to the peace plan presented Wednesday by the United States, United Nations, European Union and Russia and rejected by Palestinian hard-liners.

Israeli officials say they will not change the way they confront an uprising for statehood until the Palestinians show they are cracking down on fighters as required by the road map.

UN Secretary-General Kofi Annan condemned the raid. He said Israel acted against international humanitarian law by attacking the Gaza neighborhood. He said he was “deeply disturbed” by the Israeli raids, and that “such actions, including reported house demolitions, are contrary to international humanitarian law.”

US Secretary of State Colin Powell, on a visit to Madrid, sounded a note of caution to both sides at the start of a trip to Europe and the Middle East to promote Israeli-Palestinian peacemaking in the aftermath of the Iraq war.

“We’ve got to get beyond this period of suicide bombings and retaliatory actions or other defensive actions that are taken...,” Powell told a news conference. “We can’t let these sorts of incidents immediately contaminate the road map.”

The Gaza raid targeted Youssef Abu Heen and his two brothers, all Hamas men who the Israeli Army said had been involved in organizing “terror attacks” on Israelis.

Israeli Brig. Gen. Gadi Shamni said soldiers surrounding the house called on the people inside to give themselves up but the men responded with gunfire. Hospital officials said the three brothers were killed in the ensuing gunbattle.

Hamas said in a statement: “We are using a legitimate weapon to confront the Zionist aggression — the weapon of resistance — and it will not be dropped as long as occupation exists.”

Ahmed Ayyad, a blacksmith, said his two-year-old son, Amir, was killed by a bullet to the head as the toddler stood near a window facing Israeli troops. “I could not help him,” Ayyad said, choking back tears at the local morgue. “What road map? It is nonsense...the Israelis do not want peace — you can ask my son.”

Witnesses said six of the dead were civilians, including a 13-year-old boy and a 17-year-old, and six were fighters. Hospital officials said at least 70 people were wounded.

Shamni said gunmen had fired on troops from positions in houses near the Abu Heen home. Israeli military sources said eight soldiers were wounded.

Witnesses said 20 houses on the Egyptian side of the Gaza Strip town of Rafah were damaged during the raid. Six of the homes were left without roofs, while the windows of 20 houses were destroyed. The homes are located on Saladin Street, which divides the border city.

Earlier in the West Bank, two gunmen were killed in a clash with Israeli soldiers near the village of Yatta, residents said.

The peace proposal calls for a series of confidence-building steps, including a halt to Palestinian violence and the suspension of Israeli settlement building on occupied land, leading to the establishment of a Palestinian state by 2005.

Hamas and other groups have vowed to keep up bombings in defiance of Mahmoud Abbas, a moderate who took office on Wednesday after months of US efforts to sideline Yasser Arafat.

Israel said Powell was expected to arrive for talks on May 8.

Palestinian officials said he would meet Abbas but not Arafat, who Washington says is an obstacle to peace. Arafat denies fomenting violence.