Palestinian sources called the protest the first of its kind to have in effect prevented an air strike by the Israeli military which said it did so to avoid inflicting civilian casualties.
Israel had served a customary warning to the family of a militant of the Popular Resistance Committees in Jebalya refugee camp to evacuate their home because it would soon be bombed, the spokesman and Palestinian witnesses said.
Hundreds of neighbours and protesters gathered at the site, many barricading themselves inside the house and on its roof in defiance of the warning, witnesses said.
A senior Hamas militant, Nizar Rayan, led the unusual protest which was broadcast live by Palestinian television.
"Death to America and death to Israel," the crowds chanted as many waved their fists in the air.
Later an Israeli military spokesman confirmed the raid had been called off because of the protest.
"The attack plan was cancelled because of the people there," the spokesman said. "We differentiate between innocent people and terrorists."
The spokesman vowed Israel would continue its strikes against militants, and accused gunmen of using the civilians in the camp as human shields.
As part of a fight against militants firing rockets from Gaza at Israel, the Israeli military often bombs the homes of gunmen from time to time but after warning family members to leave so as to avoid casualties.
Israel has stepped up attacks in northern Gaza from where rockets are launched since an Israeli woman was killed and a man seriously injured by a rocket strike on Wednesday on the town of Sderot.
But Israel has also been under pressure to avoid killing civilians in Gaza after an artillery shell killed 19 in Beit Hanoun on Nov.8 in an attack criticised internationally, for which Israel apologised and said was a technical failure.
In the past Gaza occupants have promptly evacuated their homes after receiving an Israeli bomb warning, and air strikes have often followed within the hour.
But after the protest at Jabalya, militant leaders broadcast calls urging Gazans to resist future Israeli bomb threats in similar fashion.
"We call upon all the fighters to reject evacuating their houses and we urge our people to rush into the threatened houses and make human shields," Abu Abir, a spokesman for the Popular Resistance Committees said.

Copyright Reuters, 2006