The three young children of a senior Palestinian intelligence officer were shot dead in cold blood yesterday as they were being driven to school, in the most savage murder yet during a wave of internal violence.

The three sons, under the age of 10, of Bahaa Balousha, 34, a past opponent of Hamas, along with a bodyguard who was accompanying them, were all killed when masked gunmen drove across their path and sprayed their white Skoda car with dozens of bullets in a busy Gaza City street shortly after 7am.

There was no immediate claim of responsibility for the attack, which provoked angry calls from local activists in the opposition Fatah faction for the resignation of the Hamas-elected Palestinian Authority for failing to stem a rising tide of violence in the Gaza Strip.

The murder was strongly condemned by both Hamas and the Palestinian President Mahmoud Abbas, who described it as an "ugly crime" committed by a "bunch of bastards". But it is likely to fuel tensions between the two factions in the wake of collapsed coalition talks and warnings that Mr Abbas intends to call new elections despite opposition from Hamas.

Dozens of armed intelligence and security personnel firing angrily into the air joined a funeral procession through the city streets carrying aloft the victims’ bodies, urged on by anti-Hamas slogans. Accusing the " Iranian-backed" Ministry of the Interior of doing " nothing" in response to such attacks, one Fatah activist yelled through a loudspeaker: "If it had been Hamas children that were killed it would be different."

The Skoda had only just picked up Col Balousha’s sons, Salam, three, Ahmed, seven, and Osama, nine, in Ahmed Abdul Aziz Street in the al-Rima district to take them to the local Greek Orthodox school. As it reached a T-junction it came under a barrage of gunfire which killed the boys and their bodyguard, Mahmoud al Habeel, 22.

The boys’ six-year-old cousin Lydia Abu Obaid, who had been picked up first, and was sitting behind the driver’s seat, escaped with only minor injuries. Another bodyguard, Ayman al-Ghoul, 23, who was driving the car, was in intensive care in the Al Quds hospital with serious neck and shoulder wounds. Three other children, all passers by, were also injured in what some witnesses said was firing from two cars ­ a yellow Mercedes as well as the white Mitsubishi which blocked the victims’ vehicle. One witness, Huda Awadi, a 12-year-old girl, said she had been standing nearby when she was shot in the leg during the attack while her seven-year-old sister Nisma was shot in the hand.

"I was walking to school with Nisma when some men in masks jumped from a car and started shooting all over the place. I fell to the ground. Nisma said, ‘Come with me,’ but I couldn’t get up so I said, ‘Go and tell dad.’ Some people came to help me but the men started firing again, over our heads. " There were two fresh bullet holes in a steel pole bearing the one-way street sign.

Another eye-witness, who would only give his name as Mohammed, 17, said the Mitsubishi had been driving down the one-way street the wrong way. After it stopped at the T-junction, several masked men jumped out and began shooting. "I hid behind a street lamp and then I ran back with two kids and they started pulling the people out. The children’s schoolbooks were out of their satchels so maybe they had been reading in the car."

Around 2,000 mourners gathered at the Sheik Radwan cemetery, where their distraught father kissed the bodies of his children ­ at least one on whom was draped in a yellow Fatah flag ­ before they were lowered into freshly dug graves. Col Balousha left without speaking. His grieving wife Linda, 33, had earlier declared over a picture of her sons: "What did the 3-year-old do or see in his life to deserve this?"

Col Balousha, 34, was involved in the round-up and detention of Hamas suspects under Yasser Arafat in the mid-Nineties, and there were also suggestions in Gaza yesterday that he had acted against suspected collaborators with Israel. The wounded bodyguard’s cousin, businessman Wael al Ghoul, 40, said his relative was being transferred to the Ichilov hospital in Tel Aviv and added: "It was an execution. We do not know who did it. But I blame the government, the President, they are all responsible. They have to put an end to all this."

According to the Palestinian Centre for Human Rights, 31 children have been killed in the past 11 months because of internal "security chaos" which includes clan violence as well as inter-factional fighting. Last weekend the convoy of the Hamas Interior Minister Said Siyam was attacked.

* Iran has given £250m to the Palestinian Authority, the Prime Minister, Ismail Haniyeh, said, after his visit to Tehran yesterday.