The Haaretz daily said on its website that crime boss Ya'akov Alperon was killed in the blast, which was set off by remote control, and that two bystanders suffered minor injuries.
A local police spokesman confirmed the attack on Namir Road to RIA Novosti, but not the victim's identity. He denied an earlier report that a bus had exploded.
Haaretz said one of the casualties was a 13-year-old boy waiting for a bus, and that the other was a passenger in a car behind Alperon's vehicle.
The bomb is believed to have been set off by criminal rivals of the mafia boss.