Having escaped from a Palestinian prison earlier this year, al-Kaabi was wanted by Israel for conducting and planning attacks, the military spokeswoman said.
She claimed he had masterminded a foiled plot to poison food in a restaurant near Tel Aviv.
Palestinian sources said al-Kaabi was killed by Israeli special forces members disguised as Palestinians.
Two other Palestinians have been arrested in Israel and they have reportedly admitted planning to use poison that was to be given to them by the Al Aqsa Martyrs Brigades, an armed group loosely tied to Mahmoud Abbas, the Palestinian president's Fatah party.