The cross-border violence was the latest increase in tension between Israel and the Islamist Hamas movement, which controls Gaza, and raised fears of a new cycle of violence.
"The boy was lying on the ground bleeding," a member of the rescue services told the Haaretz newspaper. "The bus driver was conscious and hysterical. The entire bus was destroyed; it was a horrifying sight."
"It's the first time that a missile has hit a bus," Larry Taranto, the manager of Kibbutz Nahal Oz, told AOL News. "We have to make sure that our kids are accounted for, and that's our first priority."
Palestinian militants in Gaza also fired at least 20 mortar shells at southern Israel. One hit a house and damaged it, but nobody was home at the time.
No Palestinian organization claimed responsibility, but Israeli Defense Minister Ehud Barak blamed Hamas, which controls Gaza. Barak said he ordered the army to respond quickly. The army obeyed the order, launching a series of strikes on Gaza.
A 50-year-old Palestinian man was killed and at least eight people, including a 4-year-old child, were wounded in those strikes. Palestinians reported loud explosions in Gaza and helicopter fire for the first time in two years.
In Israel, residents are angry at the Israeli government for not doing more to stop the rocket fire from Gaza. Two years ago, Israel launched a large-scale incursion into Gaza that killed about 1,400 Palestinians, including hundreds of civilians. Thirteen Israelis also died. Some Israelis are calling for another incursion.
Shuster was referring to an Israeli airstrike over the weekend that killed three Palestinian militants. Israel said one of the men was a senior Hamas operative, and they were planning to kidnap Israelis over the upcoming Passover holiday. Hamas described the airstrike as a "serious escalation" and vowed that Israel would "bear all the consequences."
Speaking in New York, Israeli President Shimon Peres sharply condemned the attack on the bus.
"This is another clear example of Gaza's transformation into a terror state," Peres said.