Mohammed al-Zawari, 49, was killed in a hail of bullets at the wheel of his car outside his house in the city of Sfax, 270km southeast of Tunis, in December 2016.
“The Supreme Court accepted the appeal of the suspect … and rejected the request for extradition from the Republic of Tunisia,” the court said in a statement.
At a hearing on May 8, the lower court said it had established that “legal preconditions” had been met for the extradition of Alen Camdzic, 46, who has been named by local media.
The final decision will be made by the justice minister.
The suspect was arrested at the airport in Zagreb, Croatia on March 13, 2018, on an international warrant and has been held in custody since, the court in Velika Gorica, near Zagreb, said in the statement.
According to the Croatian news website Dnevnik, Camdzic denied the charges during interrogation and objected to the extradition, alleging that he was charged with a criminal offence punishable by death in Tunisia.
The second suspect, Elvir Sarac, was briefly detained in Sarajevo, Bosnia earlier this week but released when a court refused to hand him over to Tunisia, saying there was no extradition deal between the countries.
Earlier this month Tunisian prosecution spokesman Sofiene Sliti said discussions were under way to convince Bosnian authorities to deliver the individual.
“We have been surprised to find, however, that the Bosnian authorities are refusing to hand over the arrested individual to Tunisia,” Sofiene Sliti said.
Camdzic’s arrest was announced by Tunisian prosecutors who said they believed that two people with Bosnian passports had carried out the assassination of the Tunisian-Belgian citizen.
Leaders from both Hamas and the Lebanese Hezbollah group accused the Israeli spy agency Mossad of assassinating al-Zawari.
Last November, during a press conference in Beirut, Hamas claimed Mossad agents, carrying Bosnian passports, were responsible for his murder.
Shortly after his death, Hamas said al-Zawari was a drone expert who had worked for the “resistance” for a decade before being killed by “Zionist treachery”.
Israel has assassinated many members of Hamas in the past, but hasn’t responded to accusations that it was behind the murders.
In November 2017, al-Zawari’s family denounced “silence” on the part of authorities and called on them to provide more details on the investigation into his killing.
Israel was also accused of being behind the assassination of Fadi al-Batsh in April in Malaysia. He was a member of Hamas scientist who was said to be a rocket-making expert.