There were no casualties but the blast early on Sunday morning caused minor damage at the northern entrance to the camp, where several Fatah offices are located close to a neighbourhood controlled by the group's opponents.
The unknown attackers are still at large and Fatah security forces went on immediate alert, firing weapons into the air for nearly 30 minutes after the explosion.
A Palestinian official told Aljazeera “such attacks only serve to maintain the tension that has increased in recent weeks.”
No peace for refugees
Eight people were killed last May in a three-day gunfight between Fatah supporters and various armed groups in Ain al-Hilwah.
Like the other 11 Palestinian camps scattered across Lebanon, Ain al-Hilwah falls outside the control of the Lebanese army. It is home to some 80,000 refugees.
Lebanon hosts more than 370,000 Palestinian refugees registered with the UN Relief and Works Agency for Palestine Refugees (UNRWA).
In addition to UNRWA-registered refugees, another 42,000 unregistered Palestinians live in Lebanon - but because they trace their exile to the 1967 war, they fall outside the UNRWA refugee definition.
Tensions have increased between rival Palestinian groups in Lebanon during the last four years, at times boiling over into violence.
Ain al-Hilwah, Lebanon's largest Palestinian refugee camp located on the outskirts of the southern port city of Sidon, stands at the epicenter of the rivalries.
Until mid-1999, Palestinians opposed to Palestinian National Authority president Yasir Arafat and the Oslo peace process controlled most of the camp and its residents.
However, Arafat's Fatah Movement of the Palestine Liberation Organization (PLO) began recruiting and training a security force resulting in a heated political struggle in the camp.
Fatah forces face stiff opposition from various groups in the camp, and local and international media regularly report armed clashes, though few actual fatalities, each month.