The blast came as acting premier Ehud Olmert voiced fears that awkward negotiations lie ahead to form a government to fix Israel's final borders.
There have been mixed reports on how the blast occurred: some say the bomber riding in a car blew himself up after spotting a religious Jew near the Kedumim settlement.
But others say two Israeli women and one man, who died in the blast, gave a lift in their car to the bomber, who was dressed as an ultra-Orthodox Jew.
Rafaela Segal, who lives at the settlement, said she heard the blast from her house, from where she can see the gas station.
"I saw thick smoke rising from the gas station and at first I thought the gas station was on fire," she said.
"Now all the roads are closed except for the emergency vehicles. The smoke has reached my windows," she told Israel Radio more than an hour after the blast.
The Al-Aqsa Martyrs Brigades, an offshoot of Palestinian president Mahmud Abbas' Fatah party, said in a statement one of its fighters Ahmad Masharka, 24, from the West Bank town of Hebron blew himself up in the attack.
The Palestinian Authority's new Hamas led government says the bombing is a natural response to what it says are Israeli crimes.
"It was a natural response to the Israeli crimes, to the continued Israeli killing, incursions and arrests," said Hamas lawmaker Mushir al Masri. "Our Palestinian people have the right to defend themselves."
It was the first suicide bombing carried out by a group other than Islamic Jihad since Palestinian factions declared a truce in February 2005 ahead of Israel's withdrawal from the Gaza Strip.
Meanwhile Israeli aircraft have fired a missile at a training camp belonging to Hamas. Hamas says the camp had been evacuated and there were no casualties.
Coalition talks
The violence came as Prime Minister-elect Ehud Olmert faced mounting pressure for his Kadima party to cede the key finance portfolio to the centre-left Labour bloc in upcoming talks to form a coalition Israeli government that aims to fix Israel's permanent borders by 2010, with or without a Palestinian partner.
Mr Olmert's ambitious plan to set Israel's boundaries received a boost from the United States when Secretary of State Condoleezza Rice expressed openness to the possibility of unilateral moves by Israel to redraw the map of the Middle East by 2010.
Palestinian leader Abbas, however, has reiterated his opposition to Israel's go-it-alone strategy in a phone call to Mr Olmert.
Labour sources said party leader Amir Peretz and Eli Yishai, head of the third-placed ultra-Orthodox Shas party, are to meet to coordinate their line in the formal negotiations chaired by President Moshe Katsav from Sunday.
Mr Olmert acknowledged he was slightly disappointed in the result of Tuesday's ballot and it would complicate efforts to form a stable coalition.
A final vote count gave Kadima 29 of the 120 seats, around six short of most poll forecasts, against 20 for Labour and 12 for Shas and the once towering right-wing Likud party.
The result means Mr Olmert will have to trawl much deeper for coalition allies than he would have wished and control less of the key portfolios.
The prospect of unilateral action has been further strengthened by the coming to power of a Palestinian government led by Hamas, which has been behind suicide attacks and is committed to Israel's destruction.
Although Washington has traditionally insisted on a negotiated settlement, Ms Rice did not rule out supporting Mr Olmert's strategy, suggesting last year's pullout from the Gaza Strip and Hamas's rise had changed the equation.