Police officials told Reuters that Riad Ali was turned over to them in Gaza City on Tuesday. CNN confirmed Ali's release.
Israel Radio quoted Ali's father as saying he had spoken by telephone to his son who told him that he felt fine and was waiting to return home. Ali is a Palestinian who lives in Israel and holds Israeli citizenship.
Ali was abducted in Gaza City on Monday by armed Palestinians who stopped a CNN vehicle and asked for him by name.
Sulaiman al-Shafi, the Gaza correspondent of Israel's privately run Channel Two television said tension had risen in the territory after the assassination in the Syrian capital by suspected Israeli agents of Hamas official Izz al-Din Shaikh Khalil.
"When there are assassinations like that in Damascus on Sunday, anger rises in Gaza and you have to be careful," he said.
"We condemn the kidnapping of journalists, which runs contrary to Palestinian interests"
Gaza spokesman for Hamas
But the Gaza spokesman of Hamas, Mushir al-Masri, categorically denied the resistance movement had any hand in the CNN employee's capture.
"We condemn the kidnapping of journalists, which runs contrary to Palestinian interests," Masri said.
Palestinian leader Yasir Arafat had ordered his security services to help secure Riad's release.
"As soon as he was informed of Riad Ali's abduction, President Arafat ordered the security services to do everything they can to ensure he is quickly freed safe and sound," an official in Arafat's office said.
Such incidents involving journalists have been rare in Gaza and the West Bank during the past four years of Israeli-Palestinian violence.
Israel allows journalists with Israeli citizenship to cross into areas under the administration of the Palestinian Authority after they sign a waiver releasing the Israeli Defence Ministry and military of any responsibility for their safety.