Benjamin Netanyahu says the strike which killed scores of displaced Palestinians in Rafah on Sunday was a “tragic mistake”.
At least 45 people were killed according to the Hamas-run health ministry, amid growing international condemnation of the blast.
Hundreds more were treated for severe burns, fractures and shrapnel wounds.
Israeli Prime Minister Netanyahu did not elaborate on the error but speaking in the Israeli parliament, he said it was vital that Israel took “every precaution possible” to protect civilians caught up in the fighting in Gaza.
Despite our utmost efforts not to harm innocent civilians, last night, there was a tragic mistake,” Netanyahu said Monday.
“We are investigating the incident and will obtain a conclusion because this is our policy.”
He added: “I don’t intend to end the war before every goal has been achieved.“
Mohammed Abuassa, who rushed to the scene in the northwestern neighborhood of Tel al-Sultan, said rescuers “pulled out people who were in an unbearable state”.
“We pulled out children who were in pieces. We pulled out young and elderly people. The fire in the camp was unreal,” he said.
The Israel Defence Forces has launched an investigation into the airstrike on the southern Gaza city.
Gaza’s health ministry said on Monday at least 23 women, children and elderly people were killed when the strike hit tents for displaced people.
The IDF said that its operational assessment ahead of the strike was that no civilians were going to be harmed.
Maj. Gen. Yifat Tomer-Yerushalmi, the IDF’s lead prosecutor, told a press conference that the military was committed to fully investigating the incident.
“Naturally, in a war with this scope and intensity, difficult events also occur, like the event yesterday night in Rafah, which was very difficult,” she said.
“The IDF regrets any harm to noncombatants over the course of the war.”
The strike came two days after the International Court of Justice ordered Israel to end its military offensive in Rafah, where more than half of Gaza's population had sought shelter before Israel's incursion earlier this month.
Footage from the scene showed heavy destruction.
Writing on X, the French President said: “Outraged by the Israeli strikes that have killed many displaced persons in Rafah.
“These operations must stop. There are no safe areas in Rafah for Palestinian civilians.
“I call for full respect for international law and an immediate ceasefire.”
Mayor of London Sadiq Khan said: “Devastating & heartbreaking scenes in Rafah following yet another Israeli attack - in flagrant breach of the ICJ ruling & international law.
“Our own Government's lack of leadership is beyond shameful. They must finally halt arms sales & put real pressure on to end this horror.”
Last week, Mr Macron said he was spearheading efforts to build up a "humanitarian coalition" regarding Gaza and talks were being held with Cyprus to serve as a potential base for humanitarian operations.
The Israeli military said its air force struck a Hamas compound in Rafah and that the strike was carried out with "precise ammunition and on the basis of precise intelligence."
It said the strike took out Hamas' chief of staff for the West Bank and another senior official behind deadly attacks on Israelis.
The IDF added that it was aware of reports that civilians were harmed and is investigating.
A spokesperson with the Palestinian Red Crescent Society said the death toll was likely to rise as search and rescue efforts continued in Rafah's Tal al-Sultan neighbourhood about 1.2 miles northwest of the city centre.
The neighbourhood is not included in areas that Israel's military ordered evacuated earlier this month.
The spokesman for the health ministry in the Hamas-run Gaza, Ashraf Al-Qidra, said 35 people were killed and dozens others, most of them women and children, were wounded in the attack.
An IDF spokesperson said: “An IDF aircraft struck a Hamas compound in Rafah in which significant Hamas terrorists were operating a short while ago.
“The strike was carried out against legitimate targets under international law, through the use of precise munitions and on the basis of precise intelligence that indicated Hamas' use of the area.
“The IDF is aware of reports indicating that as a result of the strike and fire that was ignited several civilians in the area were harmed. The incident is under review.”
The airstrike was reported hours after Hamas fired a barrage of rockets from Gaza that set off air raid sirens as far away as Tel Aviv for the first time in months.
There were no immediate reports of casualties in what appeared to be the first long-range rocket attack from Gaza since January.
Hamas' military wing claimed responsibility. Israel's military said eight projectiles crossed into Israel after being launched from Rafah and "a number" were intercepted, and the launcher was destroyed.
Earlier Sunday, aid trucks entered Gaza from southern Israel under a new agreement to bypass the Rafah crossing with Egypt after Israeli forces seized the Palestinian side of it earlier this month.
But it was not immediately clear if humanitarian groups could access the aid, including medical supplies, because of fighting.
Prime Minister Benjamin Netanyahu convened his war cabinet on Sunday evening to discuss continued operations in Rafah.
Israel argues that the UN’s court's ruling allows room for some military action there.
Israeli war cabinet minister Benny Gantz said the rockets fired from Rafah "prove that the IDF must operate in every place Hamas still operates from".
