I have been thinking back and forth on this one. There is enough evidence to make a case for both arguments... he used the gel as the explosive or he didn't.
(Forgive me if this seems like an extremely long post, but this might be too complicated for a few sentences.)
Garak, being the expert saboteur that he is due to his Obsidian Order training, could very easily make the explosion look like an accident using the engine itself or planted a bomb to make Vreenak's shuttle explode. He wouldn't need the gel to do this. However...
The goal was to make the Romulans think it was deliberately destroyed, so he would use a bomb.
Bashir said it could be used as an organic explosive. And since biomimetic gel is strictly controlled by the Federation, it can easily point the finger towards the Federation. Except for a few things, from a Romulan perspective...
1. The Romulans know the Federation aren't ones to blow up a Romulan senator's ship.
2. The Federation is on the losing side of the Dominion War, and why would they risk creating a second enemy at the same time, guaranteeing the Federation loses completely?
3. Changelings: they have proven to have infiltrated EVERYWHERE, including Starfleet. They could easily have gotten several supplies of it while they were agents inside the Federation.
4. And even if it wasn't Changelings, the Jem'Hadar could have taken supplies of it from colonies or ships they took over during the war.
Garak correctly pointed out that the more the Dominion protests innocence, the more the Romulans wouldn't believe them "because it's EXACTLY what they'd do in their place".
There are three things that really convinces me of my final thought.
First, watch Garak's facial expressions, particularly his eyes while he is sitting looking (apparently) downward and Sisko is standing away, when Sisko first talks to him in the Wardroom. You can see the wheels are turning in his head already, before he even agrees to this. He was planning Vreenak's death right there.
Second, when Sisko talks to Garak after the fall of Betazed, he says his contacts on Cardassia are all 'dead'. Which is when he says creating evidence is the only guaranteed way of doing the mission. But... he has 'already been working on obtaining the rod', which indicates he has already been at HIS plan long before he tells Sisko about fabricating evidence.
And third (which I think seals it for me), notice Garak's eyes as he asks Sisko for the biomimetic gel on the turbolift. It's the SAME way he was during the initial meeting. Which tells me his 'source' is not the one using the gel, but Garak himself. He likely either already had the rod at that moment or it was already on the way. (Even though Sisko ordered Bashir to get it ready for interstellar transport, Garak can easily grab some while it was in DS9, or simply had his contact there receiving the shipment hand some over to Garak.) And even if the data rod guy DID ask for gel, Garak could have been given a small enough quantity to make the explosive.
So my conclusion: I think Garak used the biomimetic gel precisely because it might implicate the Federation, but knowing how they typically don't do such things, makes it appear more likely that the Dominion killed Vreenak and tried to place the blame on the Federation, hoping to get the war done faster while at the same time destroying 'evidence' of their plans to invade Romulus.