RAFAH, Gaza Strip -- Israeli tanks fired on several Palestinian houses Thursday after the army said soldiers building an embankment were attacked by rockets. At least six Palestinians were killed, including two children.

The army said the tanks targeted the houses because the rockets were fired from inside them. Palestinians said the army shot randomly into the crowded neighborhood in this southern Gaza town near the Egyptian border.

The violence erupted as Israeli Prime Minister Ariel Sharon finished talks in Washington with President Bush and others about Israel-Palestinian violence and preparations for a U.S. attack on Iraq.

During a visit to Congress, Sharon referred to the Rafah clash. "The Israeli army is the most moral in the world and tries its best not to harm civilians," he said.

The Palestinian news agency Wafa said eight people were killed, but Dr. Ali Musa, the director of Rafah Hospital, said just six bodies had arrived there.

Neighborhood residents said two other bodies were still in a house but that rescuers couldn't remove them because of continued gunfire.

Two women and two children were among the dead, killed when tank shells slammed into their houses, Palestinians said.

Clashes erupt frequently around Rafah, with Israel charging that Palestinians use tunnels beneath the border to smuggle arms, ammunition and even fighters into Gaza. Some of the tunnels lead to buildings in the Rafah refugee camp, and Israeli forces have destroyed dozens of structures located there.

Israeli Col. Pinhas Zohar said soldiers fired at gunmen who were aiming rifle grenades and rockets at a bulldozer building an embankment to protect army patrols on a road along the border.

Defense Minister Binyamin Ben-Eliezer said the bulldozer uncovered a tunnel used for smuggling weapons when it came under fire.

He expressed regret at the civilian casualties. "We don't think it's heroic to kill children," he told Israel TV, adding that he had reports that "three murderers were killed."

Palestinians said youths threw stones and bottles at the troops, and mourners at a nearby Palestinian funeral fired shots into the air. They said they weren't aware of any rockets or grenades fired at Israeli troops.

"It didn't happen," said Raouf Barbakh, one of Fatah leaders in camp. "They only want to justify this ugly, brutal massacre against innocent civilians."

Salim Abu Jazer, who lives in the camp, hid behind a car when the Israeli tanks began firing. Three shells landed in a crowded neighborhood, he said, and he saw two children fall to the ground.

"One lost her leg and her body was in a pool of blood," he told The Associated Press. "Then I moved to another house where we found a man cut in two while he was trying to leave his house."