United Nations Secretary General Ban Ki-Moon says he's outraged at the shelling of a UN relief agency compound in Gaza City by Israeli forces.
Shells hit the UN compound on Thursday during a heavy artillery bombardment in intensely populated areas.
A large group of people were taking refuge in the compound at the time.
Mr Ban says Israeli defence minister, Ehud Barak, has told him the shelling was a grave mistake.
Mr Olmert said the shelling was in response to fire coming from the building.
Mr Ban says the suffering in Gaza has reached an unbearable point.
Meanwhile, Israeli tanks and troops have advanced deep into Gaza City, following an intense bombardment.
At least two hospitals in Gaza have been hit by Israeli fire.
Diplomatic efforts to resolve the crisis still continue.
Earlier, Israel gave a positive assessment of ceasefire talks being held in Egypt, saying they have momentum.
But Israel says it will not agree to a truce that would allow Hamas to regroup and rearm.
Mr Ban earlier demanded that Israel and Hamas cease fighting immediately.
Israel began bombing Gaza on 27 December after Hamas ended a ceasefire on 19 December. An offensive by ground forces began on 3 January.