Tens of thousands of Palestinians poured on to the streets in Gaza City to mourn the murder of Shaikh Ahmad Yasin, the spiritual leader of the resistance movement, Hamas.
Yasin was killed on Monday as he left a mosque after the dawn prayer.
It is the highest profile assassination of more than three years of conflict and sparked outrage.
War is "open" with Israel, declared senior Hamas leader Abd Al-Aziz al-Rantissi.
"War is henceforth open with these murderers, these criminals and these terrorists," al-Rantissi said on a Gaza City street to a background of chants from hundreds of supporters calling for jihad.
"They know it's opened, there will be no revenge, it's an open war," he added in English, warning the Israelis they would not enjoy peace.
"They (Israelis) say that Hamas is a terrorist organisation, but the truth is that Israel is a terrorist state"
Muhammad al-Saqir, Foreign Affairs committee Kuwaiti parliament
"Inside Palestine, there will be no security for the Zionists and Jews," al-Rantissi vowed.
"With this crime, Sharon, the despicable, sought to kill off the rights of the Palestinian people to a homeland, to holy places and to return" for refugees, al-Rantissi said.
"But I tell Sharon and other leaders of the Zionist gangs that they will not succeed."
Al-Rantissi condemned what he called a "war against Islam" in Palestine and Iraq and urged Muslims "to wake from their sleep, to return to reason and make the earth tremble under the feet of the Zionists."
In an interview with Aljazeera, leading Islamic scholar Shaikh Yusuf al-Qaradawi said Yasin was not afraid of dying.
Shaikh Yasin had used a wheelchair since he was a teenager
"If Shaikh Ahmad Yasin ever cared about death, he would have taken refuge somewhere where Israelis would not even guess."
"Ahmad Yasin was not only a leader of the Hamas movement, but a son of Palestine, a defender of Palestinian cause and a prominent Islamic leader."
"Muslims all over the world should protest such a crime"
"This crime is an important lesson in the so-called peace process. The door of peace is closed. Those who seek to resume negotiations are deceiving themselves. There is no option except Jihad," al-Qaradawi said.
Although the assassination was approved by the Israeli cabinet, not all Israeli officials approved of the killing. Israeli Interior Minister Avraham Poraz said on Monday he feared many Israelis would pay with their lives for the killing Yasin.
Poraz was one of two cabinet ministers who voted against assassinating Yasin.
Thousands protested Shaikh Yasin's assassination
"Certainly those who are perpetrating terrorism, preparing a bomb which we know they are about to place somewhere have to be targeted. But Yasin was not a 'ticking bomb'," Poraz told Israel Radio.
"I fear we have opened up a cycle here and that many will pay for it with their lives," Poraz said.
"I am afraid that Hamas's motivation will increase. (Yasin) will become some sort of martyr ... a national hero for them and I'm very sorry to say, this won't prevent Hamas from continuing its activities."
Saying "every leader can be replaced", Poraz questioned the wisdom of targeting a Muslim cleric
"The result can be very dangerous," he said.
Anger in Egypt
Hundreds of students at Cairo's al-Azhar University called for revenge in a demonstration on campus.
"War is henceforth open with these murderers, these criminals and these terrorists."
Abd Al-Aziz al-Rantissi, Hamas
"The Jews have killed Yasin, where is the response of the Muslims?" the students chanted. "Sharon, coward, Yasin's blood is not worthless," they warned Israeli Prime Minister Ariel Sharon.
Yasin's assassination ignited immediate threats of reprisals from the military wing of Hamas, Izz al-Din al-Qassam Brigades who vowed to avenge the killing by taking action that would be "like an earthquake".
Making reference to Jordan and Egypt, Mahdi Akif of the Egyptian Muslim Brotherhood said Arab governments should cease relations with Israel.
"If Arab governments enjoy the least sense of responsibility, they should expel all Zionist representatives from their countries," he said.
Palestinian Prime Minister Ahmad Quraya slammed Israel's policy of assassination, calling it a "cowardly act".
"This is a crazy and very dangerous act. It opens the door wide to chaos. Yasin is known for his moderation and he was controlling Hamas and therefore this is a dangerous, cowardly act," he said.
According to the Palestinian Authority's chief negotiator Saib Uraiqat about 64 Palestinians have fallen as "martyrs" during Israeli attacks since the start of March.
Palestinians are outraged at Shaikh Yasin's murder
"This new crime must move the international community to think seriously about providing international protection for the Palestinian people," he said.
Israel sealed off the West Bank and Gaza Strip, barring Palestinians from entering Israel after killing Yasin.
The US has urged all parties to the Israeli-Palestinian conflict to remain calm and show restraint after the assassination.
"The United States urges all sides to remain calm and exercise restraint," a State Department official told AFP on condition of anonymity.
EU foreign ministers condemned the assassination saying it had inflamed the situation in the region, a diplomat said citing a joint statement.
The US-selected Iraqi Governing Council also condemned the assassination of Yasin.
In the Palestinian refugee camps on the outskirts of Jordan's capital, Amman, shops and schools closed their doors while thousands demonstrated.
In Baqaa alone, 1000 protesters gathered amid a heavy security presence after midday prayers.
"Jordanians and Palestinians are one people," they chanted, in reference to the kingdom's population of which around half are said to be Palestinians.
In Kuwait, one of America's closest allies in the Arab world, the prime minister, Shaik Sabah al-Ahmed al-Sabah, condemned the killing.
"Violence will increase now because violence always breeds violence," Shaik Sabah told reporters as he walked into parliament.
The head of the foreign affairs committee in Kuwait's parliament, Muhammad al-Saqir, said the assassination put the lie to Israeli claims that Hamas is a terrorist group.
"They (Israelis) say that Hamas is a terrorist organisation, but the truth is that Israel is a terrorist state," al-Saqir said.
"The United States has to take a position on this because such operations will target all of the Palestinian leadership," he added.