Ahmed Jabari was the most senior Hamas official to be killed since an Israeli invasion of Gaza four years ago. Jabari has long topped Israel's most-wanted list and was notorious in Israel, which blamed him for in a string of attacks, including the kidnapping of Israeli soldier Gilad Schalit in 2006.
Witnesses said Jabari was traveling in a vehicle in Gaza City when the car exploded. Crowds of people and security personnel rushed to the scene of the strike, trying to put out the fire that had engulfed the car and left it a charred shell.
Hamas police cordoned off the area around a hospital where at least one body from the strike was taken. It was draped in a white sheet, with a burned leg poking out. Hamas said another man was killed in the airstrike.
Hamas police said three other airstrikes hit other targets in Gaza City, Khan Younis and Rafah.
Israeli officials had said that they were considering assassinating top Hamas officials following a wave of rocket fire from the Hamas-ruled Gaza Strip at southern Israel, triggering Israeli airstrikes. The exchanges appeared to be waning on Tuesday, but the killing of Jabari is likely to re-ignite the flare-up.
Israeli military officials, speaking on condition of anonymity under army regulations, said Jabari was identified by "precise intelligence" gathered over several months.
Advocates say targeted killings are an effective deterrent without the complications associated with a ground operation, chiefly civilian and Israeli troop casualties. Proponents argue they also prevent future attacks by removing their masterminds.
Critics say they invite retaliation by militants and encourage them to try to assassinate Israeli leaders. They complain that the strikes amount to extrajudicial killings.
During a wave of suicide bombings against Israel a decade ago, the country employed the tactic to eliminate the upper echelon of Hamas leadership.
Israeli aircraft have previously assassinated the previous commander of Hamas' military wing, Salah Shehadeh, the movement's spiritual leader, Sheik Ahmed Yassin, his successor, Abdel Aziz Rantisi, and dozens of other senior Hamas military commanders.
The practice set off a continuous wave of criticism from rights groups and foreign governments, particularly the strike that killed Shehadeh - a one-ton bomb that killed 14 other people, most of them children.