Medics and witnesses said a missile from an Israeli drone struck a vehicle late on Thursday and killed Adnan al-Ghul, who has been on Israel's most wanted list since 1987.
The Israeli army offered no immediate comment on the attack which also killed Imad Abbas, another Hamas fighter.
Aljazeera's correspondent in Gaza said al-Ghul was one of the top Palestinian engineers involved in developing al-Qassam rockets that are often fired by resistance fighters into Israeli territory.
He had survived two Israeli assassination attempts in the past two years, one of which killed his son.
The news of his killing brought dozens of resistance fighters to the mortuary. They fired from their rifles in the air and shouted for revenge.
"The reaction will be painful and an unforgettable lesson to the Zionist enemy," said Hamas spokesman Mushi al-Masri.
Al-Ghul's killing came amid a surge in violence ahead of next week's vote in the Israeli parliament on Prime Minister Ariel Sharon's plan to withdraw Jewish settlers and troops from occupied parts of Gaza.
Another fighter killed
Following al-Ghul's assassination, a resistance fighter from Hamas was killed and another one critically wounded in the southern Gaza Strip early on Friday, medical sources said.
Crowds gather at the scene of
The circumstances of the death of 28-year-old Iyad al-Sir, whose body was torn to pieces in what appeared to be a violent blast, were not immediately clear.
The army said fighters had fired a mortar shell at a settlement in the Gush Katif bloc and that soldiers had responded with fire.
Hamas gave a similar version but witnesses in the Palestinian town of Khan Yunis said al-Sir died and his fellow fighter was wounded as the mortar they attempted to fire prematurely detonated.
At al-Sir's funeral on Friday, Ahmad al-Haddad, 21, was killed by Israeli gun fire. The circumstances of the shooting were not immediately clear.
In southern Gaza, an Israeli soldier was killed on Thursday in what appeared to be a bomb or anti-tank missile attack along the Gaza-Egypt border, an army spokesman said.
The explosion occurred in an army buffer zone between Gaza's border with Egypt and the nearby Rafah refugee camp, a frequent flashpoint in a four-year-old Palestinian revolt against the Israeli occupation.
Earlier on Thursday, two Palestinian resistance fighters were killed at an Israeli army post in the Gaza Strip. Israeli army spokesman said the fighters were trying to infiltrate Israel from northern Gaza.