Delhi police said the explosion was caused by a "very low intensity improvised device" and damaged the window panes of three nearby parked cars.
"Initial impressions suggest a mischievous attempt to create a sensation," a police spokesperson said in a statement.
The Israeli foreign ministry said no damage was caused to its embassy building and all Israeli diplomats and embassy staff were safe.
"The incident is under investigation by the authorities in India, who are in contact with the relevant Israeli authorities," the foreign ministry said in a statement.
"As of now our strong assumptions (is) that it's a terror attack. They targeted the Israeli embassy," said the ambassador of Israel to India, Ron Malka.