The Israeli army fired missiles at a car in Gaza City on Saturday, killing Islamic Jihad's most senior militant in the coastal area and a woman who was in the car behind him, Palestinian officials and relatives said.
Initially, Palestinian hospital officials said the two dead were Hamas militants, but later the group denied their members had been killed.
Relatives of Mohammed Dadouh, 40, described by Gazans as Islamic Jihad's most senior military commander, confirmed he had been targeted and killed in the airstrike.
Another woman, who was in a taxi close behind Dadouh's jeep with her children, was also killed. The children aged 5 and 7 were among the six wounded.
The army said Dadouh was responsible for firing home-made rockets and mortar rounds at Israeli towns.
Dozens of Islamic Jihad activists gathered at the hospital on Friday. Some gunmen fired in the air, while other people cried.
"Today we have lost another hero, but God willing the Israeli government will drink the same bitter drink that Dadouh's family and our people have been swallowing for a long time," said Abu Ahmed, the spokesman for Islamic Jihad's military wing.
"The blood and the flesh of our leader today is the fuel for the resistance vehicle. There will be no limitations and no borders for our coming reprisal. All possible means of resistance will be used," Abu Ahmed said.
Dadouh's brother was killed two months ago when a booby-trapped car blew up in Gaza, reports AP.