The Israeli military confirmed it carried out an air strike and said it targeted two militants who were planning to infiltrate Israel.
It said one of them was involved in a suicide bombing in the southern Israeli city of Eilat five years ago that killed three Israeli civilians.
The identity of the other dead man was not immediately known.
The air strike set off an explosion that turned the car into a ball of fire. Onlookers arriving moments later saw the body of a man sprawled near the vehicle with much of his head missing. A dismembered leg and hand of a second person lay on the ground nearby.
In all, two people were killed and five bystanders wounded, said Adham Abu Salima, an official in the Gaza Health Ministry.
Israel has repeatedly targeted vehicles carrying suspected militants in missile strikes, most recently on Tuesday when one person was killed.
