They dealt an embarrassing blow to Mahmoud Abbas, the Palestinian president, hours after he had vowed to end disorder that threatens to derail a 25 January election and as resistance groups spurned his plea to renew a truce with Israel.
Firing shots in the air, the gunmen seized Alessandro Bernardini during a visit by a delegation of 18 Italians ahead of the parliamentary election. He was freed after several hours.
Palestinian security forces said they briefly came under fire from the kidnappers but found they had abandoned Bernardini before they reached the building where he was being held.
"I am fine, I am fine... They gave me cigarettes and tea," Bernardini told reporters, looking shaken but unhurt.
"I will never change my idea about the occupation," he said, referring to Israel's occupation of land that Palestinians seek for a state. "I am with the Palestinian people."
An armed offshoot of Abbas's ruling Fatah movement calling itself al-Aqsa Martyrs Brigades-Sunni People said it carried out the kidnapping.
The faction said its demands were a full investigation into the death of late leader Yasser Arafat in 2004 and the removal of corrupt leaders from Fatah.
"Those irresponsible people are working against the interest of the Palestinians. They are trying to destroy the good Palestinian image in the world. We will bring them to justice. Enough is enough"
Palestinian negotiator Saeb Erikat condemned the kidnapping as harmful to the quest for a state.
"Those irresponsible people are working against the interest of the Palestinians. They are trying to destroy the good Palestinian image in the world. We will bring them to justice. Enough is enough," he said.
Hours earlier, armed attackers stormed a United Nations club in Gaza City and blew up the bar - the only place where alcohol is served openly in the Muslim territory. Nobody was hurt, but the attack added to security fears.
The United Nations is generally seen favourably in Gaza, where it is the second-biggest employer after the Palestinian Authority.
Chaos has grown in the Gaza Strip since the departure of Israeli troops in September after 38 years of occupation intensified a power struggle among political factions, gangs and security forces.
The disorder has worsened in the run-up to a 25 January parliamentary election. Palestinian officials have said the troubles could force the postponement of the vote.
Abbas has said he does not want a delay, but some in his fractured Fatah movement support the move because Fatah is struggling against a challenge from Hamas whom many Palestinians see as less tainted by corruption.
A major flare-up of violence with Israel could also force an election postponement, and Palestinian officials appealed to armed factions to renew the commitment they made last year to a "period of calm".
Resistance groups said that as of 1 January they had abandoned the de facto truce that has delivered the longest reduction in violence since the start of the second Palestinian uprising in 2000.
Israeli troops shot dead two Palestinian fighters in Gaza on Saturday after rocket attacks from a "no-go zone" it decreed in the north of the strip last week to curb cross-border fire.
Palestinians say the buffer zone is tantamount to re-occupying areas that Israel gave up last year.