The fatalities were identified as Nur Hassan, 30, and her daughter Rahaf Hassan, 2. Medics said three others were still trapped under the home's ruins in the Zeitun sector south of Gaza City.
Israel claimed it had targeted "two Hamas weapon manufacturing facilities" in response to two rocket launches Saturday, as well as a number of attempts by Palestinians to "break into Israel from Gaza", AFP reported.
One of the rockets had hit an open field in southern Occupied Palestine and the other was intercepted, while nine Palestinians were killed during the border clashes with Israeli soldiers.
Sunday's deaths come as violence against Palestinians, which began in east Jerusalem and the West Bank several days ago, threatened to spiral out of control.
Gaza had been mainly calm amid the week's unrest elsewhere, but the recent clashes exacerbated fears that a wider Palestinian uprising, or intifada, could erupt.
The Friday border clashes came as Hamas's senior leader Ismail Haniya, called for a new Palestine intifada, saying "Gaza will fulfill its role in the Quds intifada and it is more than ready for confrontation."