The bomb hit the Zahar home in Gaza City's Rimal neighborhood, leveling the building and sending huge plumes of smoke into the air. Several adjacent houses were also destroyed. Palestinian police were struggling to control an angry crowd that gathered at the scene.
Zahar, who witnesses said was standing at the front door of his house at the time, was lightly hurt in the leg and was taken to nearby Shifa Hospital. The bodies of the dead were badly burned. Hospital officials identified one of the dead as Zahar's 30-year-old bodyguard. Relatives identified the other victim as Zahar's son, Khaled, 29.
The Israeli military confirmed it carried out the strike and said Zahar was one of the decision-makers behind Hamas' suicide bombings. Hamas claimed responsibility for the attacks on Wednesday.
As CBS News Correspondent Robert Berger reports, Israeli Prime Minister Ariel Sharon has said that every Hamas leader is marked for death.
The airstrike came a day after suicide bombers dispatched by Hamas killed 15 Israelis in twin attacks at a bus stop crowded with soldiers and at a popular Jerusalem nightspot.
Hamas has threatened unprecedented revenge for Israel's failed attempt over the weekend to kill several Hamas leaders, including founder Sheik Ahmed Yassin, in an air strike.
Staff at the hospital called over loudspeakers for people to donate blood to help treat the wounded, who were brought to the hospital in ambulances and private cars. Among the wounded were five children and three women, hospital officials said. Three of the wounded were in critical condition.
Zahar's wife suffered serious injuries but was in stable condition after surgery, said Dr. Hazaa Abed, director of surgery at Shifa Hospital. A daughter of Zahar was also lightly injured. Another of his sons, Sami, was missing.
Zahar himself left the hospital, and Hamas officials said he was taken to a safe place.
The strike flattened Zahar's two-story house, destroyed two nearby buildings and damaged a mosque. Witnesses described feeling the ground shake and seeing a spray of debris. A fog of dust covered the area for several minutes.
Men were searching the rubble to check if anyone was buried underneath.
A taxi driver, Jaber Abu Rass, joined the search and heard the sound of a child screaming.
"She was covered in blood and dust," he recalled. As he carried the girl out of the rubble a gas canister exploded, bringing down the wall of a neighboring house and injuring the him in the head.
Another man, Rami Salameh, 29, helped take Zahar out of an ambulance. "He had his hand behind his head and his hand was covered with blood," Salameh said. "When I moved him to the stretcher with the help of other people he screamed from pain in his back. But he was talking to us saying, 'I am OK. I am OK."'
After Wednesday's strike, hundreds of students from the Islamic University, where the 58-year-old Zahar is the head of the medical school, gathered at the hospital. Some of them held Hamas banners. Others chanted, "Death to Sharon" and "God is greater than the aggressors."
The twin Palestinian suicide bombings - one at a bus stop crowded with soldiers near Tel Aviv, the second five hours later at a popular Jerusalem nightspot — killed at least 15 Israelis and wounded and maimed dozens as the region grappled with a new wave of savage bloodletting.
Israel Radio reported that the two bombers were Hamas activists from Rantis village west of Ramallah in the West Bank. The Tel Aviv bombing killed eight Israelis and the Jerusalem bombing seven, one of whom died in a hospital early Wednesday.
In one Gaza neighborhood, Palestinians fired assault rifles in the air and about 100 took to the streets in celebration after the attack on the cafe. In the Bureij refugee camp in the central Gaza Strip, some Hamas supporters celebrated by distributing candies to the families of those killed in previous violence.
Israel's military has relentlessly targeted Hamas militants since the group claimed a suicide bombing last month that killed 22 people on a Jerusalem bus. Earlier Tuesday, Israeli troops in Hebron killed two Hamas members — including the group's leader in the West Bank town — and a 12-year-old bystander, and blew up a seven-story apartment building where the militants were hiding out.
The day's violence underscored the collapse of U.S.-backed peace efforts and came amid political uncertainty after the resignation of Palestinian Prime Minister Mahmoud Abbas.
Palestinian parliament speaker Ahmed Qureia said Wednesday he has accepted the post vacated by Abbas.
"I have accepted the appointment," Qureia told reporters after a meeting with Palestinian leader Yasser Arafat. "I will start forming my Cabinet. It will be a crisis Cabinet," Qureia said.
Arafat had tapped Qureia for the job over the weekend, after Abbas resigned following four months of wrangling with Arafat over his authority. Qureia had previously said he would only accept the appointment if he had guarantees that Israel would change its policies.
An increasing number of Israeli officials were calling for the expulsion of Arafat, and expectations were mounting that Israel will step up military strikes and possibly invade the Gaza Strip — which Israel has not yet reoccupied — to root out the Hamas leadership.
The attacks came as Sharon was away on a visit to India. Spokesman Raanan Gissin said he would shorten the visit by a day and return to Israel Wednesday.