Ismail Abu Shanab was riding in the gold-colored station wagon when it was struck in the Rimal neighborhood. Paramedics pulled three bodies out of the burning vehicle, witnesses said.
There was no immediate comment by the Israeli military. In the past, Israel has repeatedly killed wanted Palestinians in targeted missile attacks. Israel suspended the practice after militants declared a unilateral truce June 29.
On Thursday, however, Israeli officials said they would resume targeted killings if Palestinian authorities did't take immediate action against militant groups.
The missile strike came two days after a Hamas suicide bomber blew himself up on a Jerusalem bus, killing 20 people, including five Americans.
Meanwhile, Palestinian leaders, acting under intense U.S. pressure, on Thursday approved what appeared to be a limited clampdown on militants, as Israeli troops hunting terror suspects raided three West Bank towns and killed a 16-year-old bystander in a shooting.
Palestinian Prime Minister Mahmoud Abbas' government threatened Wednesday night to resign if Yasser Arafat and the committees under his control did not approve steps against militant groups, Israel's Haaretz newspaper reported.
The Israeli reprisals and Palestinian policy shift came in response to the deadliest attack since the launch of the U.S.-backed "road map" peace plan three months ago.
Abbas had shied away from confrontation with Hamas, Islamic Jihad and armed renegades in his own Fatah movement, saying he feared internal fighting.
However, after the Jerusalem bombing, there was mounting pressure, with the United States demanding an immediate crackdown. "There's funding, there's support, there's munitions, there's organization, and all that needs to be taken apart," said State Department spokesman Richard Boucher.
A senior U.S. envoy, John Wolf, met Thursday with Abbas. Wolf heads the U.S. team monitoring implementation of the road map.
In a first step, Abbas ordered the arrest of all those directly involved in the bombing, and then asked his Cabinet for proposals on a wider clampdown. The ideas raised in the Cabinet meeting, including arrests, a gag order on Hamas and Islamic Jihad spokesmen and the freezing of assets of militant groups, were taken to Yasser Arafat and top PLO officials for approval late Wednesday.
The meeting, which lasted until early Thursday, was at times stormy. Abbas had told his ministers earlier that he would resign if he did not get Arafat's full support for taking action against Hamas and Islamic Jihad, but it was not clear whether he did make the threat in Arafat's presence.
In the end, Abbas and Arafat agreed on a joint statement which said the Palestinian Authority would enforce the rule of law, take control of illegal weapons and end "military displays" by the militants, a reference to marches led by gunmen.
Islamic Jihad and Hamas officials said they were ordered by Palestinian police not to speak to reporters, and many leaders of the two groups had their phones turned off Thursday.
The Palestinian leadership statement did not refer to arrests, which would appear to be a cornerstone of any crackdown, but Palestinian officials said there would be detentions.
"It's a campaign that even in the worst nightmares Hamas and Islamic Jihad never imagined," said Elias Zananiri, a spokesman for Palestinian security chief Mohammed Dahlan. "There's a list of people to be arrested."
Israeli troops Thursday also raided the West Bank towns of Nablus, Jenin and Tulkarem in search of militants. Since the spring of 2002, when Israel reoccupied most of the West Bank, troops have been moving in and out of Palestinian towns repeatedly to arrested wanted men.
One of the operations was carried out in the Casbah, or old city, of Nablus, a militant stronghold where troops were looking for Hamas militants and Fatah renegades responsible for two bombings that killed two Israelis earlier this month.
Troops sealed off the old city with armored vehicles and barbed wire and ordered residents out of homes to search buildings. Soldiers took over several buildings as outposts, suggesting a longer stay. They arrested 14 Palestinians in and around Nablus during the night, including a Hamas member caught with a large quantity of explosives, the army and witnesses said.
In the town of Tulkarem, Israeli undercover troops chasing two Fatah gunmen raided a local pool hall, but the fugitives managed to escaped. The soldiers opened fire during the chase, killing a 16-year-old bystander and wounding four, all under the age of 20, Palestinian security officials said. The Israeli military said there was a gunbattle.
A third raid targeted the town of Jenin and an adjacent refugee camp, a stronghold of the Al Aqsa Martyrs' Brigade, a militant group loosely linked to Fatah. No arrests were made.
In the West Bank city Hebron, troops blew up the home of the Jerusalem bus bomber, a routine punishment intended as deterrent.
Israel had largely suspended such raids after Hamas, Islamic Jihad and Fatah declared a unilateral truce June 29. However, even after the cease-fire, troops continued chasing so-called "ticking bombs" — wanted men suspected of planning new attacks.