An Aljazeera correspondent reported that Numan Tahaina, 38, was on Israel's most wanted list since the first Palestinian intifadha against Israeli occupation in 1987.
"Israeli troops entered the western part of a refugee camp called Dahisha near the city of Jenin. A few moments later one could hear, rapid gunfire," the correspondent said.
The attack followed a 'raid' by Israeli armoured vehicles in Jenin earlier in the day, with troops storming the local hospital and other buildings, according to journalists and Palestinian security sources.
An Israeli army spokeswoman said Tahaina, who occupation forces have long alleged was the mastermind behind the al-Aqsa brigades, was killed in a "targeted operation".
She said troops had ordered two vehicles to come to a halt.
"The first car stopped and its three passengers were arrested, while the second car failed to stop and was fired upon and Tahaina was killed," she said.
Tahaina was assassinated while another man in the same car suffered gunshot wounds and was arrested.
Palestinian fighters responded by firing Quds-1 rockets into the Israeli town of Sderot late on Tuesday, Aljazeera reported.
Israel has frequently resorted to assassination operations during the Palestinian uprising against Israeli occupation that began in September 2000.
The man was killed in a 'targeted operation', focussing on resistance fighters.
Israeli army spokeswoman
Israel has lately intensified its assassinations targeting a number of Palestinians, leaders and civilians alike, over the past few months.
Palestinians and many in the world community have slammed the policy as illegal but the Israel has increasingly turned a deaf era to international concerns.
Gaza split in two
In a seperate incident, the Israeli Army placed large concrete barriers on the main north-south roadway at a central Gaza Strip checkpoint, effectively cutting the region in two, said Palestinian witnesses.
They said the Israeli army closed the Abu Huli checkpoint indefinitely claiming that it was due to maintenance work on the road.
Closing the road would cut off Gaza's main traffic artery and make it impossible for hundreds of thousands of Palestinians to travel between the north and the south of the Strip.
Israeli occupation forces also entered the refugee camp of Balat near the city of Nablus and occupied twelve homes saying that it had turned them into checkpoints.
Elsewhere, Israeli occupation forces destroyed Alaa Abd al-Kareem's home near the city of Bethlehem on the suspicion of his membership in the Fatah resistance movement.