The New Delhi attack took place just a few hundred meters from the prime minister's residence as the diplomat's wife was heading to the American Embassy School to pick up her children, said Delhi Police Commissioner B.K. Gupta.
When the car approached a crossing, she noticed a motorcyclist ride up and stick something on it that appeared to be a magnetic device, he said.
The car drove a short distance, there was a loud sound and then an explosion and the car caught fire, he said.
"It was a loud explosion. We realized it's not a firecracker, but an explosion, and rushed toward the car," said Ravi Singh, 50, owner of a gas station near the blast site.
The blast left a charred minivan with blue diplomatic plates, its rear door apparently blown out.
Gupta said the woman, Tal Yeshova, was stable and conscious. Her driver, Manoj Sharma 42, sustained minor injuries. Two people in a nearby car sustained minor injuries, he said.
Image: Indian security and forensic officials examine a car belonging to the Israel Embassy after an explosion tore through that in New Delhi on Monday. The driver and a diplomat's wife were injured, according to officials.