Al-Ubaidi has been wanted by Israel for many years.
The death comes a day after Israel killed 17 Palestinians and injured 50 others in an incursion in the Gaza Strip.
Mahmoud Abbas, the Palestinian president, described the killings as "a massacre".
Abbas said on Tuesday: "What happened today is a massacre, a slaughter against the Palestinian
"Our people cannot keep silent over these massacres. These massacres cannot bring peace."
Israel's incursion came a week after George Bush, the US president, said during a visit to the region he wanted a peace deal between the Israelis and the Palestinians by the end of his presidential term at the end of 2008.
Hamas officials blamed Bush's presence in the region for the violence.
Abbas said the Gaza operation, in which Hussam al-Zahar - the son of Mahmoud al-Zahar, a former Hamas foreign minister - was also killed, had severely damaged the peace efforts relaunched by Bush in the US city of Annapolis less than two months ago.
Taher Nunu, a Hamas spokesman, said: "What is clear is that there is an Israeli plot to destroy the whole region.
"President Bush gave the green light to such aggression and such terrorism."
He said: "To all the Arab countries, to the custodian of the two holy mosques [King Abdullah of Saudi Arabia], Arab leaders and heads of states, we would like to tell them that they have to act immediately in order to put an end to this aggression."
Israel said they were engaging in an operation "against terror threats".
Since Annapolis, at least 115 Palestinians have been killed by Israeli fire in Gaza, according to an AFP count.