Witnesses and UN officials said Israeli shells have struck the United Nations headquarters in the Gaza Strip Thursday.
The Israeli security establishment said Palestinian gunmen positioned near the facility had opened fire at IDF forces prior to the shelling.
The compound has been serving as a shelter for hundreds of people fleeing Israel's offensive in Gaza. UN spokesman Chris Gunness said at least three people were wounded.
The entire area was engulfed in smoke and was not clear whether anyone was still inside the compound.
The compound includes the headquarters of the UN agency for Palestinian refugees, other offices and a school. Gunness said large amounts of aid supplies, as well as fuel trucks, could soon be destroyed.
Guinness told Ynet that the group had received reports from eyewitness "with a military background" suggesting the building was hit by white phosphorus shells.
The attack came just minutes ahead of Foreign Minister Tzipi Livni's meeting with Ban Ki-moon. The UN secretary general is demanding an immediate end to the fighting in Gaza.
Ban said he has expressed "strong protest and outrage" to Israel over the shelling and demanded an investigation into the incident. He said Israeli Defense Minister Ehud Barak has told him it was a "grave mistake."
Barak told Ban that "Hamas was using Palestinian civilians as human shields and is opening fire at IDF forces from areas that are adjacent to UN facilities.
"Israeli soldiers are responding and will continue to respond out of self defense to any attempts at harming them," the defense minister told the UN chief.
Palestinian sources also reported an attack on a Red Crescent hospital in Gaza City's Tel Hawwa neighborhood. According to the report, the hospital, which houses 500 beds, was on fire.
The Physicians for Human Rights group said it was informed "of a fire in the hospital's administrative building. There are about 400 to 500 people inside, including 40 medical staffers and 15 patients which can be moved only by ambulances. Rescue efforts are hindered by the flames… We demand the IDF assist in the immediate evacuation of the patients."
Earlier it was reported that Israeli tanks shelled downtown Gaza City and ground troops thrust deep into the crowded Tel Hawwa neighborhood for the first time, sending thousands of terrified residents fleeing for cover and increasing pressure on Hamas rulers to accept the proposed ceasefire.
Yael Levy and AP contributed to the report