A top Palestinian militant was killed in an explosion and an Israeli settler was shot dead in the West Bank in a fresh wave of bloodshed on Wednesday.
Islamic Jihad said Mr Dahdouh was its top military figure in Gaza
Khaled al-Dahdouh, head of Islamic Jihad's armed wing in the Gaza Strip, died when a car blew up in Gaza City.
Islamic Jihad has blamed Israel for the killing, but Israeli officials have denied involvement.
The settler was working at a petrol station in the northern West Bank when he was shot by gunmen.
Islamic Jihad's radio station said Mr Dahdouh, 45, commanded the al-Quds Brigades in Gaza and described him as the movement's top military figure there.
Initial accounts said Mr Dahdouh was inside the car when it blew up, and Palestinian security sources immediately said this had been the latest in a series of Israeli air strikes at militant targets in Gaza.
However sources in Islamic Jihad later said they believed Mr Dahdouh was simply walking past the vehicle when it blew up.
They think the car had been wired with explosives and detonated remotely by an Israeli agent.
Mr Dahdouh is said to have survived eight other Israeli assassination attempts against him.
As leader of the movement's military wing in Gaza, Mr Dahdouh would have played a key part in orchestrating anti-Israeli attacks, says the BBC's Alan Johnston in Gaza.
"The Zionists will swallow the same bitter drink that each Palestinian family has drunk from before," said Abu Dajana, a spokesman for the group.
Islamic Jihad has said it was behind a number of suicide bombings in Israel last year and it frequently fires missiles across Gaza's perimeter fence into southern Israel.
West Bank attack
The Jewish settler, Eldad Abir, was shot at the entrance to Migdalim settlement near the city of Nablus in the occupied West Bank. He is said to have been in his forties.
"Everyone knew him; he was a great man," a witness told Yediot Aharanot.
"On the Tapuah-Migdalim route there are occasional shooting attacks, but nothing happened lately. The petrol station is not guarded but the community is totally secured."
The Palestinian militant group, the al-Aqsa Martyrs' Brigades, said they were behind the attack, although Israeli police said the killing may have been criminally - rather than politically - motivated.
"Members of the Hammouda Shatiwi Martyr Brigade carried out the attack to avenge the death of Shatiwi, one of our group's senior members, at the Balata refugee camp last week," members of the group said.
There was another drive-by shooting reported near the Karnei Shomron settlement in the northern West Bank a few hours later.
Witnesses said an Israeli was shot in the neck and left in a critical condition.