Israeli security forces are on a heightened state of alert for possible reprisals by Palestinian militants after Israel tried to kill the spiritual leader of the radical Hamas movement.
Israel will pay a high price, Sheikh Yassin warned
Hamas has vowed to avenge an Israeli air strike in Gaza City on Saturday which slightly injured Sheikh Ahmed Yassin and wounded at least 14 other people.
Extra police and security personnel have been deployed in sensitive areas of Jerusalem, while the West Bank and Gaza Strip have been sealed off to prevent Palestinians from entering Israel.
Amid the growing tension, the United States has said it remains committed to the Middle East peace plan - the road map - despite the resignation on Saturday of Palestinian Prime Minister, Mahmoud Abbas.
The White House refuses to deal with the Palestinian President, Yasser Arafat, and made the creation of the office of prime minister a key condition of the internationally-backed peace plan.
Mr Arafat has been discussing the crisis with Palestinian legislators and officials from his Fatah movement.
Mr Abbas - also known as Abu Mazen - told reporters in the West Bank town of Ramallah on Sunday that his resignation was "final", Reuters news agency said.
Asked if he would consider accepting the post again, he said: "It's very premature to talk about this right now."
The attempted assassination of Sheikh Yassin was the latest in a series of Israeli attacks on Hamas, launched after a suicide bombing that killed more than 20 people on a bus in Jerusalem.
At least 11 Hamas militants and four civilian bystanders have been killed in missile strikes in Gaza since 21 August.
The Israeli military has promised a "relentless war against Hamas" - a view reiterated by Israeli Prime Minister Ariel Sharon who said the group's leaders were "marked for death".
"We won't give them a moment's rest," Mr Sharon was quoted as saying by the Israeli newspaper Yediot Ahronot.
"We will continue to hunt them because they have only one objective: the destruction of Israel."
The Israeli military said it had targeted a building in Gaza City where the Hamas leadership was meeting "to plan future terror attacks against Israelis".
Hamas officials said Sheikh Yassin and his assistant, Ismail Hanieh, alerted by the sound of approaching aircraft, had left the house just moments before an F-16 warplane dropped a bomb on it.
The building was in a densely populated area
Sheikh Yassin, who is wheelchair-bound, was taken to hospital for treatment to his hand and shoulder, witnesses said.
He later told a crowd of supporters that Israel and its prime minister, Ariel Sharon, would pay a "high price for this crime".
The attack prompted protests across the Gaza Strip, with Hamas officials threatening to assassinate Mr Sharon in a revenge attack.
"Sharon, your head is now wanted," chanted one angry crowd.
In the latest violence, Palestinian sources say a 17-year-old Hamas activist has died of his injuries after being shot by Israeli troops overnight in Jabaliya in the northern Gaza Strip.
The Israeli army confirmed the shooting, saying that the teenager had been "spotted at night while he was in a closed military zone", the French news agency AFP reported.
"Soldiers ordered him to stop but he refused to respond to their orders and started digging as if he was placing a bomb," an army spokesman said.