Cabinet minister Rechavam Ze'evy has died of his wounds, Prime Minister Ariel Sharon announced on Israel TV.
The death of Ze'evy, 1926-2001, was pronounced at 10 AM at the Jerusalem Hadassah Ein-Kerem hospital.
Ze'evy was shot in the head and neck early Monday near his room in Jerusalem's Hyatt Hotel. The attack took place around 7 AM.
The radical Popular Front for the Liberation of Palestine claimed responsibility for the attack, citing the Israel's targeted killing of the organization leader Abu Ali Mustafa earlier this year.
The Hyatt is located adjacent to Arab east Jerusalem and to Palestinian-controlled areas of the West Bank.
Initial findings indicate that two unidentified men ambushed the minister by his room and shot him at close range, according to the website Ynet. The gunmen have apparently escaped.
Ze'evy's wife said she found him "lying without a pulse" on the floor of the hotel hallway in front of their room.
Ze'evy, leader of the far-right National Union-Yisrael Beiteinu bloc, announced Monday that he and party colleague Avigdor Lieberman were resigning from the government in protest over cabinet decisions they viewed as too soft on Yasser Arafat's Palestinian Authority.
The resignations were to have taken effect later on Wednesday.
The area around the Hyatt was in chaos, with large numbers of police arriving and a manhunt begun for the gunmen.
Palestinian militant groups have warned in the past that if Israel continued its policy of targeted killings of suspected terrorist commanders and other Palestinian figures, Israeli officials would become targets as well. But there was no immediate claim of responsibility for the shooting.
Career officer to politician
Ze'evy was born in Jerusalem in 1926. He graduated from the United States Army Command and General Staff College and after serving as a career officer, retired from the Israel Defense Forces with the rank of major-general.
He turned his attention to politics, leading the Moledet hard-line party from 1988, and served on a long list of Knesset panels. In 1999, he was elected on the joint National Unity ticket serving in the 15th Knesset.
In March 2001 he was named Tourism Minister, serving under Likud prime minister Ariel Sharon.
According to the Foreign Ministry, Ze'evy has authored 65 books. He leaves a wife and five children.