Hamas said Ahmed Al-Jaabari, who ran the organisation's armed wing, died along with a passenger after their car was targeted by an Israeli missile.
Israel's intelligence service confirmed it had carried out the attack, saying it had targeted Jaabari because of his "decade-long terrorist activity".
The Israeli military said in a statement:
The purpose of this operation was to severely impair the command and control chain of the Hamas leadership.
Today's bombing in Tel Aviv is reminiscent of six years ago and could mark a serious escalation in the conflict.
A truce in Gaza suits all sides but none of the groups seem interested in a long-lasting solution.
A complex system of air defences has been instrumental in protecting Israel's population from incoming rockets.