* UN rights forum sets independent international inquiry
* Israel and ally United States reject probe
* Pillay says killing civilians, shelling homes are war crimes
* UN rights chief also condemns Hamas firing of rockets
* Palestinian minister says Israel should be held to account (recasts after vote, adds speeches by Israel, US, Palestinians)
By Stephanie Nebehay and Tom Miles
GENEVA, July 23 (Reuters) - The United Nations on Wednesday launched an international inquiry into human rights violations and crimes that may have been committed by Israel during its military offensive in the Gaza Strip.
The U.N. Human Rights Council condemned the Israeli assault which it said had involved "disproportionate and indiscriminate attacks", including aerial bombing of civilian areas, collective punishment, and the killing of more than 650 Palestinians.
At the end of an emergency session, the 47-member forum adopted a resolution presented by Palestinians by a vote of 29 states in favor, 1 against (the United States) with 17 abstentions (including all nine European Union members).
"We came here to try to achieve together with you at least minimum justice for children who are being dismembered, for women whose bodies are lying in the streets, to find some justice for those who are being exterminated," said Ibrahim Khraishi, ambassador of the Palestinian observer mission to the U.N. in Geneva.
Israel and its ally United States rejected the probe, calling it one-sided and counterproductive amid efforts to clinch a ceasefire. Israel has observer status at the talks.
Israel ambassador Eviator Manor, in remarks before the vote, told the forum: "Why does this Council believe that naming and shaming Israel will get it anywhere?
"Throughout the entire escalation of events, Israel has always acted with maximum restraint, fully committed to international law in general and the laws of armed conflict."
Israel had established its own special commission of inquiry "with a scope beyond what is required under international and criminal law," Manor said.
"Hamas is the aggressor. Hamas is the one committing war crimes ... Open your eyes to reality," he said.
POSSIBLE WAR CRIMES
U.N. High Commissioner Navi Pillay said that Israel may have committed war crimes by killing civilians and shelling houses and hospitals during its offensive in Gaza that began on July 8.
She also condemned the firing of rockets and mortars by Palestinian militants into Israel, saying such acts also constitute breaches of international law.
Pillay, citing cases Israeli air strikes and shelling hitting houses and hospitals in the crowded coastal enclave, said: "These are just a few examples where there seems to be a strong possibility that international humanitarian law has been violated, in a manner that could amount to war crimes.
"Every one of these incidents must be properly and independently investigated," she said.
Pillay, a former U.N. war crimes judge, said that any warning by Israel to Gaza residents ahead of strikes must be "clear, credible and allow sufficient time for people to react".
Gaza fighting continued to rage on Wednesday, displacing thousands more Palestinians in the battered territory as U.S. Secretary of State John Kerry said indirect truce talks between Israel and Hamas had made some progress.
The Geneva forum convened the special one-day session at the request of the Palestinians, Egypt and Pakistan.
Israel, which accuses the Council of bias, boycotted the Geneva forum for 20 months, resuming cooperation in October.
Its envoy Manor defended Israel's air strikes and ground assault on Gaza as being necessary to defend the Israeli people.
The Council "cannot be supportive of an organization that is no different than al-Qaeda, ISIS (Islamic State), Boko Haram, Hezbollah and other extreme radical Islamist organizations that negate the very essence of human rights," Manor said.
Palestinian Foreign Minister Riad al-Malki hit back, accusing Israeli forces of perpetrating "heinous crimes" by destroying whole neighborhoods and killing entire families.
The U.N. aid agency OCHA said at least five entire families, with 36 people, had been killed in the past few days.
The United States said that Kerry was seeking to secure an immediate ceasefire based on the Nov. 2012 ceasefire agreement.
U.S. ambassador Keith Harper, calling for a vote, said that the resolution was "destructive" and a "political and biased instrument".
"Once again, this Council fails to address the situation in Israel and in the Palestinian territories with any semblance of balance. There is no mention of indiscriminate rocket attacks by Hamas into Israel or the tunnels used to cause mayhem," he said. (Reporting by Stephanie Nebehay and Tom Miles; editing by Sonya Hepinstall)