Mahmud al-Sharif was shot in the head on Monday by men who burst into his ward in the city's Al Shifa hospital, hospital sources said.
There was no immediate claim of responsibility for the killing.
But sources within Islamic Jihad said that the 45-year-old was suspected of having supplied the Israeli forces with information that led to the killing of one of the organisation's leaders 10 years ago.
Earlier in the day, a Palestinian policeman hurled two hand grenades into a cell in Gaza City jail. The cell was holding prisoners accused of collaborating with Israel; seven people were wounded, Palestinian security sources said.
Gaza has been fraught with
The assault appeared to be an attempt to assassinate Walid Hamdunah, also known as Hamdiya, accused of helping Israel target and kill leaders of the Palestinian resistance, the sources said.
He was among two of the prisoners whose injuries medics said were serious.
The jail is inside a Palestinian security compound in Gaza City. Police refused to let reporters inside.
Israeli military sources said Israel had nothing to do with the explosion.
Gaza has been fraught with Palestinian infighting in recent weeks as groups struggle for power before an anticipated Israeli withdrawal from the territory.
Palestinians seeking reform have set fire to police stations and taken officials and foreigners captive, creating a state of lawlessness that has become President Yasir Arafat's biggest challenge since he returned from exile 10 years ago.