The killings are the first violent deaths in Gaza for weeks
Witnesses say they were killed trying to retrieve a football in a no-go area near the Egypt border; Israel says they were involved in smuggling weapons
It is the most serious such incident since Israeli and Palestinian leaders declared a ceasefire in February.
Hours later, Palestinians fired mortars at Jewish settlements in Gaza, without causing any injuries.
The Palestinian Authority called the killings a "serious violation" of the truce.
'Warning shots'
Witnesses said the group of boys came under fire when they tried to retrieve a football.
Reports said at least two of the dead boys were 14 and 15 years old.
The BBC's Alan Johnston in Gaza says the youths had approached a zone along Gaza's border with Egypt, which is occupied and heavily defended by Israeli troops.
Israeli military sources say the youngsters had entered an area along the frontier that is strictly forbidden to Palestinians.
The sources say that warning shots were ignored and then the teenagers were fired at, our correspondent says, noting these are the first Palestinian deaths in violence in Gaza for weeks.
Saeed Siyam, a Hamas leader in Gaza, said the killings would be avenged.
"The Palestinian people cannot stay silent in the face of this crime and it cannot pass without punishment," AP quoted him as saying.
The Unicef deputy executive director, who had been visiting Rafah on Saturday to launch a polio campaign, condemned shooting.
"This sad event hits me particularly hard because I been in the area just a few hours earlier, interacting with Palestinian children," said Toshiyuki Niwa.
"These kids were just being kids when their lives were cut short."
Rocket attack
Following the shootings, Palestinian militants from Islamic Jihad fired at least 20 mortars and rockets at Jewish settlements in Gaza.
An Islamic Jihad leader, Mohammed Hindi, told a news conference the truce with Israel remained intact, but called for Palestinians factions to "re-evaluate the situation".
The violence comes amid heightened tension ahead of a planned mass rally on Sunday on the disputed Jerusalem holy site known to Jews as the Temple Mount and to Muslims as Haram al-Sharif (Noble Sanctuary).
The demonstration is being organised by Israelis who want to rebuild a temple on the site.
Palestinian militant groups have threatened a violent response if protesters reach the al-Aqsa Mosque in the hilltop compound.
'''April 9, 2005'''

The two month old truce between Israel and the Palestinians is still intact after three teenagers were shot down earlier today while trying to smuggle firearms through the Egyptian border. Palestinians claim they saw the children attempting to fetch a football that had landed in a no-go zone near a refugee camp, in southern Gaza. Israeli army sources say the youths entered a forbidden area heavily guarded by Israeli forces near the border with Egypt. The teenagers were fired upon by soldiers after they ignored warning shots.

Militants responded by firing mortar shells at Jewish settlements in Gaza, although no one was injured.

The level of violence in the Gaza region had dropped significantly since the cease fire was agreed upon by both sides of the conflict. Islamic Jihad chief Mohammed al-Hindi said today: "So far, the Palestinian factions have not declared an end to the calm... but they are studying the issue anew because of continued Zionist aggression." Saeed Siyam, a Hamas leader in Gaza, told the ''Associated Press'': "The Palestinian people cannot stay silent in the face of this crime and it cannot pass without punishment."

"These kids were not playing soccer," said an anonymous Israeli army commander today. "You don't get there by accident."