UN officials have said that the main UN compound in Gaza has been hit with shells containing the incendiary agent white phosphorus.
Several hundred Palestinians were estimated to be inside the building.
The attack drew sharp condemnation from UN Secretary-General Ban Ki-moon, who was in Tel Aviv talking with Israeli officials on a ceasefire for the enclave.
"I conveyed my strong protest and outrage to the defence minister and the foreign minister and demanded a full investigation," said Ban, adding that "Defence Minister Barak said to me it was a grave mistake."
Spokesman for UN Relief and Works Agency (UNRWA) Chris Gunness, said: "It looks like phosphorus, it smells like phosphorus and it burns like phosphorus.
"White phosphorus cannot be put out with water.
"You can’t put it out with traditional methods such as fire extinguishers.
"You need sand but we do not have any sand in the compound."
The Geneva Convention bans the use of white phosphorus, which burns at extremely high temperatures, as a weapon of war in civilian areas. However there is no blanket ban under international law on its use as a smokescreen or for illumination.
Many Palestinians in Gaza have reportedly sustained serious injuries from the substance which is classified as a 'chemical weapon' by US intelligence.
The building was clearly marked with UN flags and officials were blaming Israel for the attack.
UNRWA spokesman Johann Eriksson said the attack was "unforgivable" and has seriously damaged UN supplies. One of the UN buildings, which contained hundreds of tonnes of aid was on fire.
"In the warehouse, which is on fire now, the very pallets, the very goods that were to be distributed as humanitarian supplies all over Gaza today are burning as we speak," Eriksson said from Jerusalem.
"We speak frequently with the IDF reminding them of the GPS coordinates of our installations," he said.
"They are aware exactly of where our compound is and what it looks like, and they know their rounds landed in the most vulnerable part of our compound, they are aware that these tankers were parked exactly where they were."
The Israel Defence Forces (IDF) said today that all weapons used in Gaza were "within the scope of international law".
White phosphorus was also used in Israel's 2006 war against Lebanon.
In other attacks the al-Quds hospital in the Tel al-Hawa neighbourhood was reportedly on fire and a building housing several central media outlets, including the Reuters news agency, was also hit. Two journalists were said to be seriously wounded. Another press building was also struck.
A UN official said "there is no where safe to go" in Gaza City.
What is white phosphorus?
White phosphorus is a highly flammable incendiary material which ignites when exposed to oxygen, and will burn human skin until all the oxygen is used up. A doctor from Fallujah in Iraq, where the US used the substance, described victims "who had their skin melted".
White phosphorus, known as WP or Willy Pete in the military, flares in spectacular bursts with a yellow flame when fired from artillery shells and produces dense white smoke. It is used as a smokescreen for troop movements and to illuminate a battlefield.