The three managed to flee the car but were hit by a second rocket, which also hit bystanders, the witnesses said.
One bystander, Bilal Sliman Rabah, 18, was killed and seven people were wounded, including one in a critical condition, medical sources said.
An Israeli army spokeswoman confirmed the air force carried out an air raid "against a group of gunmen" in the area.
The latest death brought the overall number of Israelis and Palestinians killed since the beginning of the Palestinian intifada in September 2000 to 5,176, the vast majority of them Palestinians.
Four Palestinians from a the Al-Aqsa Martyrs Brigades militant faction, which is loosely affiliated to president Mahmud Abbas's Fatah party were wounded in an earlier air strike in Gaza City, local officials said.