Israeli security sources said soldiers guarding the road leading to the Netzarim colony opened fire at a suspicious vehicle which immediately detonated.
The size of the explosion, which was heard in nearby Gaza City and sent smoke billowing into the air, suggested the car was packed with explosives.
Although Palestinian security officials had earlier said that the driver was killed in the blast, witnesses later said they saw a man jump out of the vehicle and flee to safety moments before the explosion.
There were no reports of Israeli casualties in the explosion
and no Palestinian resistance group has yet claimed responsibility for any failed attack.
However, the explosion comes just hours after an Israeli missile blew up a car in the West Bank city of Nablus, killing two Palestinian resistance fighters.
Leaving a huge crater, the missile killed a local al-Aqsa Martyrs Brigades commander, Khalil Marshud, and another who was in the car just outside the Balata refugee camp.
Cordoned off About 20 Israeli military vehicles stormed into Nablus' Ras-al-Tina neighbourhood in the West Bank on Tuesday, Aljazeera's correspondent reported.
They cordoned off two sites in the town under the pretext that they were looking for Palestinian resistance fighters.
On the border with Egypt an Israeli soldier was hit by shrapnel when a rocket fired by Palestinian resistance fighters hit an Israeli tank in the town of Rafah.