Police set up roadblocks across the city trying to apprehend the attacker.
"We strongly believe that this was a terror attack," said police spokesman Micky Rosenfeld. He said three of the 27 wounded were moderately to seriously hurt.
In Gaza, the bombing was praised from mosque loudspeakers, while Hamas' television station interviewed people praising the attack as a return of militants' trademark tactics.
Clinton said the U.S. "strongly condemns" the bombing, which she called a "terrorist attack."
Israel and Hamas had seemed on the brink of a truce deal Tuesday following a swirl of diplomatic activity also involving U.N. chief Ban Ki-moon and Egypt's Morsi. But sticking points could not be resolved as talks — and violence — stretched into the night.
Clinton shuttled among the sides, meeting Israeli Prime Minister Benjamin Netanyahu in Jerusalem Tuesday night, then Palestinian President Mahmoud Abbas in the West Bank the next morning before heading to Cairo. After talks withC Clinton, the Egyptian president met with Ban.
In overnight Gaza violence, at least four airstrikes within seconds of each other pulverized a complex of government ministries the size of a city block, rattling nearby buildings and shattering surrounding windows. Another strike leveled the empty, two-story home of a well-known banker in downtown Gaza City.
"This is an injustice carried out by the Israelis," said the house's caretaker, Mohammed Samara. "There were no resistance fighters here. We want to live in peace. Our children want to live in peace. We want to live like people in the rest of the world."
The Israeli military said its targets included the Ministry of Internal Security, which it says served as one of Hamas' main command and control centers, a military hideout used as a senior operatives' meeting place and a communications center.
Huge clouds of black smoke rose above the Gaza City skyline on Wednesday as airstrikes pounded a Gaza City sports stadium, from which rockets have been fired at Israel in the past, and a high-rise office building housing Hamas-affiliated media offices, but also Agence France-Presse.
AFP reporters said they evacuated their fourth-floor office Tuesday, after an initial strike targeted sixth-floor offices linked to Hamas and other smaller factions.
A four-year-old boy was killed in the second attack on the high-rise Wednesday, according to Gaza health official Ashraf al-Kidra. The boy, Abdel-Rahman Naim, was in his family apartment in the building when he was struck by shrapnel and died on the way to Gaza's Shifa Hospital, al-Kidra said.
The attacks brought to 144 the number of Palestinians killed since Israel launched its offensive on Nov. 14. Among the dead were 60 civilians, according to al-Kidra.
Five Israelis have also been killed by Palestinian rocket fire, which continued unabated early Wednesday with dozens of rockets.
Israel launched the offensive Nov. 14 following months of rocket salvoes from Gaza. It has battered the territory with more than 1,500 airstrikes. The militants hit back with more than 1,400 rocket attacks. The Israeli death toll has been relatively low because of a U.S.-funded rocket defense system that has shot down hundreds of Gaza projectiles.
Washington blames Hamas rocket fire for the outbreak of violence and has backed Israel's right to defend itself, but has cautioned that an Israeli ground invasion could send casualties soaring.
The U.S. considers Hamas, which has killed hundreds of Israelis in suicide and other attacks, to be a terror group and does not meet with its officials.
Israeli media quoted Defense Minister Ehud Barak as telling a closed meeting that Israel wanted a truce to start with a 24-hour test period of no rocket fire to see if Hamas could enforce a truce among its forces and other Gaza militant groups.
Palestinian officials briefed on the negotiations said Hamas wanted assurances of a comprehensive deal that included new arrangements for prying open Gaza's heavily restricted borders — and were resisting Israeli proposals for a phased agreement. Israel and Egypt slammed shut the border after the militant group seized the territory from Abbas in June 2007, hoping to disrupt Hamas rule.
The officials spoke on condition of anonymity because they were not authorized to talk to the media.
El Deeb contributed to this report from Gaza City.
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