The seven men, from the armed wings of Gaza's rulers Hamas and allied group Islamic Jihad, were killed yesterday when Israel blew up the tunnel it said had crossed into its territory and was intended for attacks.
They were being buried today in their respective neighbourhoods in the Gaza Strip.
Hamas leader Ismail Haniya appeared at a funeral in central Gaza attended by a few thousand people, witnesses said, while senior Hamas figure Khalil al-Hayya spoke at one in the southern part of the strip.
Hamas and Israel have fought three wars since 2008 and the last conflict in 2014 was waged in part over tunnels from Gaza that were used to carry out attacks.
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Israel said it had been monitoring the digging of the tunnel for an unspecified length of time and was forced to act after "the grave and unacceptable violation of Israeli sovereignty."
It said the operation was carried out on the Israeli side of the border and stressed it was not seeking a further escalation.
Israeli Prime Minister Benjamin Netanyahu said today his country would "not tolerate any attacks on our sovereignty, on our people, on our land, whether from the air, from the sea, from the ground, or below the ground," he said.
"We attack those who seek to attack us."
The operation comes at a sensitive time, with rival Palestinian factions Fatah and Hamas pursuing a reconciliation accord aimed at ending their 10-year rift.
It is due to return the Gaza Strip to full PA control by December 1.
Both Haniya and Palestinian prime minister Rami Hamdallah spoke of ensuring the reconciliation pact remains on track.
"The response to this massacre... is to move forward towards the restoration of national unity because the enemy realises our strength is our unity," Haniya said.
Senior PA official Mustafa Barghouti accused Israel of trying to disrupt the reconciliation bid.