An Israeli strike on a crowded tent camp housing Palestinians displaced by the war in Gaza killed at least 40 people and wounded 60 others today, Palestinian officials said. Israel said it targeted "significant" Hamas militants and disputed the death toll.

It was among the deadliest strikes yet in Muwasi, a sprawl of crowded tent camps along the Gaza coast that Israel designated as a humanitarian zone for hundreds of thousands of civilians to seek shelter from the Israel-Hamas war.

Gaza's Civil Defence said its first responders recovered 40 bodies from the strike and were still looking for people. It said entire families were killed in their tents.

An Associated Press camera operator saw three large craters at the scene, where first responders and displaced people were sifting through the sand and rubble with garden tools and their bare hands by the light of mobile phones. They pulled body parts from the sand, including what appeared to be a human leg.

Attaf al-Shaar, who was displaced from the southern city of Rafah, said the strike happened just after midnight and caused a fire.

The people were buried in the sand. They were retrieved as body parts," she told an Associated Press reporter at the scene.

Nasser Hospital in Khan Younis, one of three hospitals to receive casualties, said around two dozen bodies were brought in from the strike.

The Israeli military said it had struck Hamas militants who were operating in a command-and-control centre. It said its forces used precise munitions, aerial surveillance and other means to avoid civilian casualties.

Rear Adm. Daniel Hagari, an Israeli military spokesperson, disputed the reported number of casualties in a post on the platform X, saying the reports "do not line up with the information available to the (Israeli army), the precise weapons used and the accuracy of the strike".

He said the militants killed were directly involved in the October 7 attack and accused them of committing other recent attacks against Israel and Israeli forces, without elaborating.

Hamas released a statement denying any militants were in the area. Neither Israel nor Hamas provided evidence to substantiate their claims.

Israel says it tries to avoid harming civilians throughout the war and blames Hamas for their deaths because the militants often operate in residential areas and are known to position tunnels, rocket launchers and other infrastructure near homes, schools and mosques.

The war has caused vast destruction and displaced around 90% of Gaza's population of 2.3 million, often multiple times. Israeli evacuation orders, which now cover around 90% of the territory, have pushed hundreds of thousands of people into Muwasi, a sprawling line of squalid tent camps along the coast.

Aid groups have struggled to provide even basic services in Muwasi, and Israel has occasionally struck targets there despite designating it as a humanitarian zone.

Gaza's Health Ministry says more than 40,000 Palestinians have been killed in Gaza since the war began. It does not differentiate between fighters and civilians in its count.

Hamas-led militants killed some 1200 people, mostly civilians, in their October 7 attack. They abducted another 250 people and are still holding around 100 after releasing most of the rest in exchange for Palestinians imprisoned by Israel during a week-long ceasefire last November. Around a third of the remaining hostages are believed to be dead.