Rashed Rashid, 47, was hit in the leg during a weekly protest next to the Israeli border. Doctors said he suffered multiple bone fractures above the ankle and would need surgery.
Witnesses said he was about 600 meters (1,969 feet) from the fence, far from the protesters. He was operating a live camera on an elevated area overlooking the protest and wearing a blue helmet and brown protective vest with the word "PRESS" written in white.
Co-workers said the fire appeared to come from the Israeli side of the border. The Israeli military said it was investigating the incident.
Najib Jobain, the AP's senior producer in Gaza, said he was speaking on the phone to Rashid when he was shot.
"While with me on the line, I heard him shouting 'I'm hit, I'm hit,'" recounted Jobain, who said Rashid told him the protest was ending and he was going to stop the transmission.
Majed Hamdan, the AP's driver, was working with Rashid and was collecting equipment to load into their vehicle as the protest was winding down. "I began putting some of our stuff in the car when I heard Rashed screaming," he said.
For nearly eight months, Gaza's Hamas rulers have orchestrated mass demonstrations and threatened to storm the border to pressure Israel into easing a crippling blockade. Some Palestinians have breached the security fence or crossed into Israeli territory.
Over 170 Palestinians have been killed and hundreds wounded, while at least two Israeli soldiers have been killed.
Israel accuses Hamas of endangering civilians by using the demonstrations as cover to stage attacks. It says it opens fire only when necessary and has come under a barrage of rockets.
Leaders in Gaza say many of the Palestinians killed have been unarmed.
Rashid has worked for the AP since 2002.
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