It was not immediately clear whether military intelligence chief Musa Arafat - cousin of Palestinian leader Yasir Arafat - was hurt in the blast on Tuesday night.
His convoy sped off after the explosion, but some witnesses said they had seen Arafat and he did not appear to have been hurt.
"There was an incredibly huge explosion, followed by a firestorm of bullets," said witness Araksi Wahid.
"I heard the bullets came from security guards in their intention to disperse crowds that had gathered," she added.
Medics said so far nobody had been brought to hospital for treatment.
There was no immediate claim of responsibility for the car bomb which some Palestinians suspected may have been carried out by Palestinian factions opposed to Arafat's appointment.
Israeli military sources denied any connection to the blast.
"The explosion in Gaza is not related to Israeli military
activity," a source said.
Arafat's appointment in July sparked angry protests by gunmen demanding reform in the biggest internal challenge to Palestinian President Yasir Arafat's rule since his return from exile in 1994.
The Palestinian president was forced to effectively demote
his cousin Musa because of the outcry.
NGO hits out
The NGO said many civilians had
Earlier, health non-governmental organisation Medecins du Monde hit out at Israel over its deadly offensive in northern Gaza, accusing the rogue state of using heavy weapons against civilians and blocking aid from reaching the area.
"There has been a considerable usage by the Israeli army of armed vehicles and planes. Missiles have frequently been used to target vehicles, buildings and people," the French non-governmental organisation said in a statement issued on Tuesday.
"A large number of Palestinians have been killed and wounded, including many civilians.
"Most of the wounded suffered serious injury which could lead to handicaps because of the frequent use by the Israeli army of heavy weapons such as missiles," Medecins du Monde said.
The organisation called humanitarian and medical access a "major problem".
"Certain areas occupied by the Israeli army have been closed, preventing civilians moving to safety. In these same areas, the supply of water and electricity has been temporarily cut off."
The organisation warned of a
humanitarian crisis in Gaza
The condemnation came as Israel's massive military onslaught in the northern Gaza Strip entered its third week on Tuesday with the toll topping 110 and scenes of utter devastation in the territory's largest refugee camp.
The situation in Jabalya camp, home to some 104,000 refugees, remained tense, with sporadic gunfire from Israeli tanks sending the Palestinian population ducking for shelter.
Israeli army bulldozers continued to level citrus groves and houses in the northern sector of the camp.
A drive through the squalid streets of the densely populated camp, with Israeli drones circling ominously overhead, reveals a mass of humanity.
Donkey carts compete on the road with dented old Mercedes and newer Asian imports. Barefoot children play in the sandy pavements and rubbish-strewn gutters.
"Israel moved into Jabalya and some people have been forced to fight back," said Dr Manar al-Farra, director of the camp's al-Awda hospital.
"We are expecting more casualties at any time," he said, dodging instinctively behind a pillar after a bullet whizzed past an open hospital window overlooking a working Israeli bulldozer and a tank just 100 metres away.
"Injured casualties come in like burnt pieces of steak"
Dr Manar al-Farra, director of al-Awda hospital
Farra has signed the death certificates of 26 people since the ongoing major military operation was launched a fortnight ago under the pretext of halting rocket attacks on southern Israel.
Six of those fatalities were children.
"Injured casualties come in like burnt pieces of steak," he said.
In a statement issued after its weekly meeting on Tuesday, the Palestinian cabinet criticised "the international silence in the face of the continuous Israeli aggression in northern Gaza and the whole population, and making people more desperate ... I'm not convinced it'll work.
"There is a general fatigue in the [Gaza] population. They want peace, to live in peace.
The Israeli army has continued its
operation in Gaza
"The economic situation in Gaza is very negative. Some 70% of the population are living below the poverty line ... and unemployment stands at 44%," Brisson said, adding that 120 houses a month are being demolished by Israeli forces.
Israeli Prime Minister Ariel Sharon, keen to deliver a decisive
blow to Gaza-based Palestinian resistance factions before next year's planned pullout, has ordered the continuation of the operation despite the reported reservations of some senior officers.