Eilat witnessed its first rocket attack in five years in April when several missiles struck the resort town, which lies along the border with Egypt's Sinai Peninsula.
After the blast in Gaza early on Monday, at least 17 people were rushed to a hospital. Unconfirmed reports say at least two people were killed.
At least one person is in critical condition, Al Jazeera's Nicole Johnston reported from Gaza City.
A Hamas medical officer told Al Jazeera the explosion was caused by an Israeli rocket, but an Israeli army spokesman denied responsibility.
It was unclear if al-Danaf was killed in the blast, which occurred at a time of renewed cross-border violence between Palestinian fighters and the Israeli army.
His body was not found in the house, which was completely destroyed in the blast, Johnston said.
The explosion badly damaged 12 nearby houses in the refugee camp and rescue teams were digging through the rubble for survivors.
Earlier on Sunday, Binyamin Netanyahu, the Israeli prime minister, issued a strong warning to Hamas leaders in Gaza after a weekend of missile attacks on Israeli communities.
No Palestinian group has claimed responsibility for the violence, which caused damages, but no injuries.
A Hamas commander and rocket-maker was killed in an Israeli air strike at the weekend after a rocket fired from the enclave exploded in the Israeli city of Ashkelon.
Issa Batran, whose caravan was hit by a missile, was the first Hamas commander killed in an Israeli air strike in Gaza since Israel wound up a three-week military offensive against the territory's Hamas rulers in January 2009.