A senior Hamas leader was killed in Gaza today in an Israeli air strike on the Jabaliya refugee camp, Hamas officials said.

Saeed Seyyam, the group's interior minister, was killed in the attack on a house during one of the heaviest bombardments of Gaza in Israel's military operation so far.

Palestinian sources told Reuters the house had been rented by his brother, who was also reportedly killed in the attack along with Seyyam's son. The attack flattened the house, leaving a large crater in the ground, Hamas officials said.

Seyyam was appointed after the Palestinian elections in 2006 and was in charge of 13,000 Hamas police and security men. Speaking on al-Jazeera television, Mohammed Nazzal, a Hamas official, said there would be revenge for Seyyam's death. "The blood of Saeed Seyyam will be a curse on the Zionist entity," he said.

Seyyam's death comes amid increasing speculation that a ceasefire may soon be agreed, despite Israeli shells setting the local headquarters of the UN refugee agency on fire earlier today. The building was hit by what appeared to be phosphorous shells as Israeli forces pushed deeper into Gaza City.

The UN secretary general, Ban Ki-moon, expressed "strong protest and outrage" and demanded an investigation into why there was an attack on the compound of the UN Relief and Works Agency (UNRWA), a well-known location in Gaza marked with blue UN flags. The number of deaths in the Gaza Strip – now 1,055 according to local UN officials – had "reached an unbearable point", Ban added.

Israel's prime minister, Ehud Olmert, told Ban later that troops shelled the building in response to Hamas gunfire coming from within, but nonetheless said it should not have happened.

Israeli troops "were attacked from there and the response was harsh", Olmert said. "It is absolutely true that we were attacked from that place, but the consequences are very sad and we apologize for it," he added. "I don't think it should have happened and I'm very sorry."

A UN official in the compound when it was attacked called Olmert's account "nonsense".

As an Israeli envoy arrived in Cairo to take part in Egyptian-brokered talks on a possible ceasefire, Gordon Brown described the shelling of the UN compound as "indefensible" and "unacceptable".

"The UN's mission in Gaza is purely humanitarian, bringing relief to civilians suffering in appalling conditions as a result of the ongoing military action and restrictions on food and medical supplies entering Gaza," the prime minister said.

UNWRA said the compound appeared to have been struck by three white phosphorus shells. John Ging, the head of UN operations in Gaza, told al-Jazeera television: "This is going to burn down the entire warehouse … thousands and thousands of tonnes of food, medical supplies and other emergency assistance is there."

He said the phosphorus fires were hard to extinguish "because if you put water on it, it will just generate toxic fumes and do nothing to stop the burning". Phosphorus munitions are banned under international law as a weapon but permitted if used to create a smokescreen.

The AFP news agency quoted witnesses as saying that a fire had broken out after an Israeli strike in a wing of al-Quds hospital in south-west Gaza City, where hundreds more people took shelter early today from advancing Israeli tanks. It was not clear if there were any injuries.

The news agency Reuters reported that a missile or shell had struck the Gaza tower block where it and other media organisations have offices. The 13th floor of al-Shurouq Tower, which houses Abu Dhabi television, appeared to have been hit, injuring one of its journalists.

Israeli forces were reported to be closing in on the outskirts of Gaza City, targeting 70 sites overnight and forcing thousands more Palestinians to flee their homes. It is not clear whether this morning's offensive marks another escalation in the conflict or a brief foray ahead of a possible ceasefire.

Israel's envoy Amos Gilad flew to Cairo today for talks with Egyptian mediators. He will not meet any of the Hamas representatives who are also in Egypt's capital.

An Israeli government spokesman, Mark Regev, said Gilad was there to discuss the "parameters of the endgame" – a goal that was "close and attainable". Regev said: "There is momentum in these discussions. We are hopeful that a deal will be based on a total cessation of Hamas fire into Israel and an arms embargo to prevent Hamas from rearming."

The Egyptian plan appears to begin with a ceasefire of a week or 10 days, during which all fighting would stop but Israeli troops would remain on the ground in Gaza. Talks would then be held on the more difficult questions of stopping the smuggling of weapons to Hamas and lifting Israel's long economic blockade of the Gaza Strip.

However, it is thought Hamas's conditions for any deal would probably include an immediate withdrawal of Israeli forces the moment a ceasefire started. That may prove too much for Israel to accept.

The prospects for an emergency Arab summit on Gaza, scheduled to take place in Qatar tomorrow, were thrown into doubt after Egypt, Saudi Arabia and half a dozen other Arab countries said they would not attend.

Underlining the deep divisions over a response to the Israeli offensive, only 14 members of the 22-strong Arab League have said they will be at the hastily arranged Doha meeting.