Jack Straw has admitted that British arms technology may have been used in Israel's Gaza attack which killed a Hamas military leader and 14 others - including eight children.

UK arms export policy came under renewed Commons fire following a missile strike on a Palestinian residential building.

The latest military action in the Middle East was described as "unjustified and disproportionate" by the foreign secretary.

Responding to concerns raised by Labour and Lib Dem MPs, Straw reiterated the government position that arms exports were "judged against consolidated UK and EU criteria".

But he acknowledged that decisions were taken against a "complex matrix of criteria which seek to balance some very difficult and often conflicting criteria".

Liberal Democrat spokesman, Menzies Campbell, asked Straw whether he would be happy if jet fighters used in future attacks were partly made in Britain.

"If the pilot of the F16 which fired the missile which did so much terrible damage and caused so many casualties in Gaza had been using, as he may be able to in 2003, a head-up display manufactured by a British company... would the foreign secretary have considered the export of that component to be consistent with government policy?," he said.

The foreign secretary conceded that it was "perfectly possible" that UK arms components may have been involved in the latest Gaza missile strike.

"We're still getting further information about which F16 was used in this attack but the contract between British Aerospace and Lockheed Martin for the supply of heads-up displays is one of very long standing and so it is perfectly possible," he said.

Straw told the Commons that it could be difficult to keep tabs on British-made components for arms manufactured in a third country.

"I share the belief round the whole house about the unacceptable nature of this attack but there are other issues involved in the current licensing decision that we have to make particularly when it is incorporation into a third country," he told MPs.

"What has happened, particularly over the past five years, is that all defence industries have become much more transnational or in our case trans-Atlantic," he said.

"What we are doing here is part of a trans-Atlantic assembly line other EU countries face exactly the same dilemma. As far as we have been able to ascertain - their information is confidential on the whole, whilst our's is fully public - they have acted in a very similar way."

Straw said that government policy had to take account of a nation state's right to self-defence and the realities of an international arms industry.

"At heart here there is, on the one hand, concern to avoid the kind of thing that happened this morning and on the other hand the fact that countries do have a right in international law to act in self-defence - not only against other nations states but against terrorism," he said.

"We as a nation have taken the strategic decision to have a defence industry. And if we have a defence industry it necessarily follows that in properly controlled circumstances that defence industry must be allowed to export."

Labour backbencher Ann Clywd highlighted Israel's increasing demand for munitions. "What possible justification can there be for selling any more arms to Israel?," she asked.

Admitting that the number of arms export licences granted for Israel had increased, Straw assured MPs that the number of refusals was also up - from six in 2000 to 31 last year.

"I know these are extremely difficult decisions and I have to think long and hard as do my right honourable friends the secretaries of state for defence and trade and industry who are involved in these decisions," he said.

"They are very difficult decisions to make but I'm satisfied that the decisions that we did make are consistent with the national and EU criteria."