Around 20 percent of children in Gaza suffer from post-traumatic stress syndrome brought on by witnessing violent acts, child psychologist Dr Iyad Sarraj told the panel.
"The amount of killing and blood that they have seen or that their relatives have suffered from... it's a huge amount, and this leads to negative psychological feelings, to radicalism and a cycle of violence," he said.
More than half of Gaza's population of 1.5 million is under 18 years of age.
The public hearings are part of the UN Human Rights Council's investigation of the 22-day Israeli offensive launched in late December that killed about 1,400 Palestinians and 13 Israelis.
The Red Cross meanwhile said in a new report that six months after the devastating offensive Palestinians in the impoverished coastal territory are "unable to rebuild their lives and are sliding ever deeper into despair."
Israeli and Egyptian sanctions imposed on Gaza after Hamas seized power in June 2007 have crippled reconstruction efforts and caused widespread misery, according to the study by the International Committee of the Red Cross (ICRC).
"The poorest residents in particular have exhausted their coping mechanisms and often have to sell off their belongings to be able to buy enough to eat," said Antoine Grand, head of the ICRC sub-delegation in Gaza.
"Worst affected are the children, who make up more than half of Gaza's population," he added.
The UN mission in Gaza is headed by Richard Goldstone, a South African judge who previously served as chief prosecutor for international criminal tribunals for the former Yugoslavia and Rwanda.
He hailed the dignity and composure of the witnesses whose testimony had "let the face of human suffering be seen".
"As fellow human beings we would like to put on record how deeply moved we were by many of the accounts of profound suffering and grief we have heard in the last two days," Goldstone added.
On Sunday, the mission heard a wheelchair-bound man describe how an Israeli shell slammed into his home, killing 11 of his relatives and cutting off his legs. Another man described a strike on a mosque that killed 17 people.
The group was expected to look into several allegations of human rights violations that emerged in the aftermath of the assault, which Israel said was aimed at stemming Palestinian rocket fire from the Hamas-ruled enclave.
Israeli authorities have so far refused to allow the investigators into the country and have accused the mission of bias against the Jewish state.
"The mandate is so one-sided, no fair, thinking person could see it as objective," government spokesman Mark Regev said on Sunday.
"The UN Human Rights Council has over the last months and years totally discredited itself as a serious vehicle for advancing human rights."
The 47-member council voted by a large majority in January to probe accusations of "grave" human rights violations by Israel, but the team was later given a broader mandate to deal with "all violations" during the war.
Israel has insisted it made every effort to spare civilians, including dropping thousands of fliers warning residents to flee ahead of strikes.
It has also said that Palestinian fighters and rocket launchers operated in crowded residential areas, a charge also lodged by human rights groups against the Islamist Hamas movement ruling Gaza.
The group plans to hold similar hearings in Geneva in which they will interview witnesses and experts on alleged violations in Israel and the occupied West Bank, and to issue a final report by September 12.
The international community has pledged billions of dollars in aid to rebuild the territory, but reconstruction efforts remain paralysed by the closures, which prevent the import of virtually all building materials.