Eleven people were wounded in the strike on the house in the Khan Yunus refugee camp, medics said. Before the strike, Palestinian residents said helicopter gunships were flying over the Gaza Strip.
Abd al-Salim Abu Musa, a known member of the armed wing of Hamas, the Izz al-Din al-Qassam, lived in the house, witnesses said.
Israeli Prime Minister Ariel Sharon has vowed to track down and kill resistance groups following the collapse of a unilateral ceasefire by Hamas and other groups. Israel continued its raids and attacks on Palestinians despite the ceasefire.
'Marked for death'
Sharon said in a newspaper interview published on Sunday that Hamas leaders were "marked for death".
He vowed to keep up the hunt for them which intensified after a bomber killed 22 people on an Israeli bus in Jerusalem on 19 August.
Israeli air strikes have killed 12 Islamist resistance activists in the Gaza Strip since the Jerusalem attack.
An Israeli fighter plane fired a missile at a house in Gaza City on Saturday, and wheelchair-bound Hamas spiritual leader Shaikh Ahmad Yasin escaped with light wounds. Hamas vowed to avenge the strike.