Police sources said a gun-wielding motorcyclist shot District Court Judge Adi Azar at point-blank range outside his home in Tel Aviv, instantly killing him on Monday.
Rescue workers pronounced the 49-year-old judge dead from two bullet wounds to the chest and head.
The suspected killer escaped and police forces erected roadblocks in and around Tel Aviv in an effort to apprehend him.
The al-Aqsa Martyrs Brigades, the armed wing of Palestinian president Yasir Arafat's Fatah movement, claimed responsibility for the shooting.
However, Israeli security officials dismissed the claim, saying the killing was criminally motivated.
The killing, considered the first judicial assassination in Israel's history, has shocked the government and judicial community.
Justice Minister Yosef Lapid said the shooting should force Israel's society to do some soul searching.
"I think this is just one example of the price we are paying for what we are doing to the Palestinians. The sort of things we are doing to the Palestinians are finally haunting us"
"I am shocked to the depths of my soul. This is the first murder of a judge in the history of the country. This must give us food for thought about where Israel's society is headed," he said.
Police were trying to pinpoint a motivation for the murder in light of the fact that Azar rarely dealt with criminal cases and had not received threats prior to his death.
However, according to veteran Israeli journalist Uri Avnery, Azar was most likely killed by a professional hitman affiliated with the mafia.
"The manner in which he was killed doesn't indicate Palestinian involvement. This is not the Palestinian style," Avnery told Aljazeera.net. "On the other hand he didn't have known enemies, which really adds to the mystery."
Avnery said the killing indicated ominousness for Israel's society.
"If indeed he was killed because he was a judge, then, yes, it would be a grave development."
Mafia victim? Judge Adi Azar
Azar's killing may be the latest target in a spate of killings related to the "mafia warfare" in Israel which has claimed dozens of people in the past few months.
Most of the killings are blamed on the powerful Russian mafia which maintains strong connections with Moscow-based mafias.
An Israeli journalist told Aljazeera.net the Russian mafia in Israel had "clandestine working relations with influential people in the government and the industry."
An Israeli lawyer blamed the government for devoting all "our energies and capabilities to persecuting and tormenting the Palestinians while giving the mafia a free rein to act as they wish in our streets."
"I think this is just one example of the price we are paying for what we are doing to the Palestinians. The sort of things we are doing to the Palestinians are finally haunting us," said Ada Ravon, who monitors the abuses carried out by Israeli occupation forces of Palestinian civilians at checkpoints and roadblocks.
She pointed out that the mafia had been responsible for a series of criminal incidents in Israel's urban centres in recent months, including car-bombings, bomb-explosions and mock shootings which killed and injured numerous Israelis.
The Russian mafia is believed to be heavily involved in a host of underworld activities, including money laundering, drug trafficking and the sex industry.
Israel is still considered the primary country dealing in the so-called white slave trade, with thousands of young girls from Russia, Ukraine and the Baltic republics lured to Israel every year and end up working as prostitutes in Israel.