It was initially feared the blast could have been a new Palestinian attack on a busy Tel Aviv street that would have shattered the longest lull in such bombings since the start of the Intifada more than three years ago.
But police spokesman Gil Kleiman told reporters: "Forty minutes into the investigation, we are treating it as a criminal act."
He refused to categorically rule out a militant operation, but added: "This is probably not a Palestinian attack but a criminal underworld killing."
The explosion occurred at a money-changing booth near a cafe at the a busy corner of Allenby and Yehuda Halevy streets.
Eye witnesses reported seeing a well-known Israeli underworld figure nearby and speculated he was the target of a murder attempt.
According to Israeli media reports, the blast in Tel Aviv was an apparent bid to assassinate Zeev Rosenstein, a prominent figure in the Israeli underworld.
According to Aljazeera's correspondent, Rosenstein was entering the exchange centre when the blast took place.
"My client was lightly wounded and is currently being treated," Rosenstein's lawyer Keren Nahari told public radio.
The last Palestinian attack in Israel was carried out by the hardline group Islamic Jihad in the northern city of Haifa on 4 October, killing 21 people plus the bomber.
One of the group's senior leaders in the southern Gaza Strip
city of Rafah was captured by the Israeli army during a massive raid on Thursday, which left five Palestinians dead.
Palestinian factions failed last week to agree to terms on a
ceasefire with Israel.