At least 47 people also were wounded — eight of them critically by the missile strike, doctors said. The wounded were civilians ranging in age from 6 to 75, doctors said.
Witnesses reported a huge explosion in the Zeitoun neighborhood in Gaza City, known as a stronghold of the militant group Hamas, which is responsible for dozens of attacks that have killed hundreds of Israelis in 30 months of fighting.
One of the dead was identified as Saed Arabeed, 38, a senior Hamas commander.
Those injured by Tuesday's strike were taken to Shifa Hospital in Gaza City. The casualties included women and children.
The Israeli military refused to comment. Since the war in Iraq began March 20, Israel had scaled back its incursions and military operations in the West Bank and Gaza, but Israeli forces have arrested dozens of suspects in nightly sweeps and raids in the West Bank.
Residents said two Israeli F-16 fighter planes circled low over Gaza City, breaking the sound barrier, in the minutes before attacking a Subaru car on a Gaza street.
Yussef Touth, 24, said the white car was approaching an intersection when he saw the planes, then "a big flame in the sky" followed by the missile hitting the car. He was wounded in both legs and lay covered with blood in the hospital.
"I saw bodies torn to pieces," he said.
The car was a twisted mass of charred metal after the attack.
Israel has carried out many similar attacks targeting suspected Palestinian militants. Palestinians and human rights groups have condemned the practice.
In recent months, Israel frequently has sent forces into Gaza, destroying buildings and arresting suspected militants. Israeli officials say they are targeting the infrastructure of Hamas to try to prevent further attacks, including the firing of homemade rockets at Jewish settlements in Gaza and Israeli villages and towns just outside the fence.
Since violence broke out in September 2000, 2,243 people have been killed on the Palestinian side and 753 on the Israeli side.