The Israeli military onslaught in northern Gaza has left 27 Palestinians killed in three days.
"The Secretary-General is deeply concerned about the continuing escalation of violence and rising death toll," spokesman Stephane Dujarric said in a statement.
"Military operations in populated areas inevitably cause civilian casualties, and in this operation several civilians have already been killed and wounded, including women and at least one Palestinian child," he added.
Dujarric said the UN secretary general, who is currently attending the Ibero-American summit in Uruguay, urged Israel "to exercise maximum restraint, do their utmost to protect civilians and to refrain from further escalating an already grave situation."
Annan also appealed to Palestinian militants to stop firing rockets against Israeli civilian targets.
"All concerned should remember that continuing violence is liable to make the search for a just and lasting peace in the region even more difficult," the UN statement said.
The latest Gaza deaths raised to 5,493 the number of people killed since the September 2000 outbreak of the Palestinian uprising, the vast majority of them Palestinians, according to an AFP count.
More than 80 people have been wounded and around 100 detained in the Gaza operation. Israel says the Gaza Strip town of Beit Hanun has become a launch-pad for rocket attacks into the Jewish state.
But troops have failed to stop the rocket fire, an almost constant curse in communities bordering the Gaza Strip since Israel left the area last year in an historic operation that had closed the curtain on a 38-year occupation.

Copyright AFP (Agence France-Presse), 2006