At least 112 people were killed and more than 280 wounded in the incident near Gaza City, Palestinian health officials said, as the death toll in nearly five months of war passed 30,000.
Medics said they could not cope with the volume and severity of the injuries.
Dozens were taken to al-Shifa hospital, which is only partially operational after Israeli raids.
The loss of civilian lives was the biggest in weeks.
Palestinian President Mahmoud Abbas said it was an "ugly massacre conducted by the Israeli occupation army on people who waited for aid trucks at the Nabulsi roundabout".
Palestinian health authorities say 30,035 Palestinians have been killed in Israel's offensive. (AP PHOTO)
Israel disputed the account provided by health officials in Hamas-run Gaza, which has been bombarded by Israeli forces for months in a war that began after the Palestinian militant group's deadly rampage in southern Israel on October 7.
Its military said the trucks were operated by private contractors as part of an aid operation that it had been overseeing for the past four nights.
One official said there had been two incidents, hundreds of metres apart, in the first of which dozens were killed or injured as they tried to take aid from the trucks and were trampled or run over.
Subsequently, as the trucks moved off, he said there was a second incident in which some people in the crowd approached troops who felt under threat and opened fire, killing an unknown number in a "limited response".
He dismissed the casualty toll given by Gaza authorities but gave no figure himself.
In a later briefing, Israel Defence Forces spokesman Rear Admiral Daniel Hagari said dozens had been trampled to death or injured in a fight to take supplies off the trucks.
He said tanks escorting the trucks had subsequently fired warning shots to disperse the crowd, and backed away when events began to get out of hand. "No IDF strike was conducted towards the aid convoy," he said.
"The IDF was there conducting a humanitarian operation to secure the humanitarian corridor and allow the aid convoy to reach its designated distribution point."
Ashraf Al-Qidra, spokesman for the Gaza health ministry, said the comments showed Israel "had pre-plotted intentions to carry out the new crime and massacre" and that the death toll could rise.
Hamas, which has run the Gaza strip since 2007, said the incident could jeopardise talks in Qatar aimed at securing a ceasefire and the release of Israeli hostages it is holding.
US President Joe Biden was asked if he thought the incident would complicate the talks, and said: "I know it will."
Diplomats said the United Nations Security Council would meet behind closed doors to discuss developments in the Gaza Strip.
A White House National Security Council spokesperson said: "We mourn the loss of innocent life and recognise the dire humanitarian situation in Gaza, where innocent Palestinians are just trying to feed their families."
Life is draining out of Gaza at terrifying speed. — Martin Griffiths (@UNReliefChief) pic.twitter.com/5Wd4w8aurXFebruary 29, 2024
US Defense Secretary Lloyd Austin told a congressional hearing that more than 25,000 women and children had been killed by Israel in Gaza since October 7, and that it could and should do more to protect civilians.
In a post on X, UN aid chief Martin Griffiths said he was "appalled", adding: "Even after close to five months of brutal hostilities, Gaza still has the ability to shock us."
The Palestinian health authorities said 30,035 Palestinians were confirmed killed and more than 70,000 wounded in Israel's offensive, launched after the October 7 attack in which Israel said Hamas gunmen killed 1200 people and abducted 253.
Much of Gaza has been reduced to rubble and the majority of its 2.3 million population displaced from their homes at least once.
