The main UN aid agency in the Gaza Strip said today that it was suspending operations after an Israeli tank shell hit one of its convoys during the ceasefire period, killing two drivers.

The United Nations Relief and Works Agency (UNRWA) made the announcement as the death toll from Israel’s war on Hamas shot up to 763 after new raids and dozens of bodies were found during a suspension in Israel’s bombing.

“UNRWA decided to suspend all its operations in the Gaza Strip because of the increasing hostile actions against its premises and personnel,” Adnan Abu Hasna, the agency’s Gaza-based spokesman, said.

Richard Miron, a UN spokesman, said the Israeli army had been notified in advance about the UNRWA convoy, which was hit as it approached the Erez crossing with Israel. Two Palestinian forklift drivers were killed.

With the Czech Republic currently holding the EU presidency, its foreign minister Karel Schwarzenberg said: “After the striking of the UN school, this is another terrible episode, which moreover occurred during the three-hour ceasefire declared by Israel.

“This is yet another proof that all wars necessarily mean tragic deaths of innocent people. That is why we reiterate our appeal: a ceasefire must not be further delayed."

Meanwhile, the 13-day conflict threatened to spread after militants in Lebanon fired at least three rockets into northern Israel, injuring two Israeli civilians and prompting military retaliation.

The Katyusha rockets were fired at the resort town of Nahariya, five miles south of the border. Israel responded with artillery fire. The authorities closed schools in the area and advised residents to stay close to shelters.

It was not immediately clear whether the rockets were fired by radical Palestinian groups based in Lebanon or by Hizbollah, a militant Islamic organisation allied to Hamas, the group Israel is trying to crush in the Gaza Strip.

Hizbollah had no immediate comment. Hamas, which fired rockets from the Gaza Strip into southern Israel almost simultaneously, denied responsibility.

Unifil, the UN peacekeeping force which controls the border area of southern Lebanon, said it was investigating.

In 2006 Israel invaded southern Lebanon and fought a bloody but inconclusive 34-day war against Hezbollah. Since then there have been only occasional rockets fired into northern Israel, but Israel has been on high alert for any attempt by Hezbollah to relieve the pressure on Hamas during Operation Cast Lead - the codename given to the assault on Gaza - by opening a second front and has warned of dire consequences if attacked.

The United Nations has already demanded an investigation into Israel’s shelling of a UN school in Gaza that killed more than 40 people earlier this week. Israel claimed that Hamas militants were operating in the area at the time.

The UN provides food aid to around 750,000 Gaza residents, and runs dozens of schools and clinics throughout the territory. They have some 9,000 locally-employed staffers inside Gaza, and a small team of international staffers who work there. UNRWA said it would not resume operations until Israel provided security guarantees for its staff.

In a further blow to Israel's credibility, the International Committee of the Red Cross today accused it of "unacceptable" conduct and breaching international humanitarian law after discovering four emaciated children living next to the corpses of their mothers and other adults in bomb-shattered houses in Gaza City.

The ICRC said that it had spent four days seeking Israeli guarantees of safe passage so that it could gain access to the houses in the badly damaged Zaytun neighbourhood of the city. It was finally allowed to send in a rescue team and four Palestine Red Crescent Society ambulances yesterday afternoon.

In one house they discovered four small children, alive but too weak to stand, next to the bodies of their dead mothers. In all there were 12 dead bodies lying on mattresses.

In another house they found 15 survivors of the Israeli bombardment, several of them wounded, and in a third, three corpses.

"This is a shocking incident," Pierre Wettach, the ICRC's head of delegation for Israel and the Occupied Palestinian Territories, said. "The Israeli military must have been aware of the situation but did not assist the wounded. Neither did they make it possible for us or the Palestine Red Crescent to assist the wounded."

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