In scenes recalling the start of a Palestinian uprising in September 2000, protests erupted in the West Bank and Gaza following the assassination by Israel this morning of Hamas leader Sheikh Ahmed Yassin. Israeli forces killed four Palestinians, including an 11-year-old and at least one gunman.
Washington denied Hamas allegations it had given Israel the green light to kill Yassin and appealed for regional calm.
Pressed in a television interview on whether Sharon had called U.S. President George W. Bush directly to tell him that Israeli forces planned the assassination, White House national security adviser Condoleezza Rice replied: "He did not."
She did not directly condemn the attack. "Let's remember that Hamas is a terrorist organisation and that Sheikh Yassin himself has been heavily involved in terrorism," she said.
The European Union criticised the "extra-judicial killing" but also recalled past EU condemnations of suicide bombings.
Former prime minister Shimon Peres, leader of Israel's main opposition Labour Party and an architect of interim peace deals with the Palestinians, said Yassin's death "could lead to an escalation of terror".
In the first sign of revenge within Israel, a Palestinian with an axe hurt three people outside an army base near Tel Aviv, Israeli police said. He was arrested.
Describing the assassination, a witness said the first missile destroyed Yassin's wheelchair and the Hamas leader lay on the ground. "People there darted left and right. Then another two missiles landed," the witness added.
Yassin's son Mohammed, who was unhurt, told Reuters he had remarked to his father about three hours before the attack about an Israeli reconnaissance plane spotted in the sky.
"He said, 'We seek martyrdom....to Him (God) we belong and to Him we return'".
Israeli Defence Minister Shaul Mofaz, speaking to reporters, called Yassin "the Palestinian (Osama) bin Laden".
But a dissenting voice in the cabinet, Interior Minister Avraham Poraz, said Yassin -- Hamas's spiritual leader -- was not "a ticking bomb" and militants' revenge could cost many Israeli lives.
Officials in the Palestinian Authority called Yassin a moderating force in Hamas, an Islamic movement he co-founded in 1987 with encouragement from Israel, which hoped the new group would undercut its long-time enemy, PLO chief Arafat.
The killing of Yassin sent Tel Aviv shares nearly two percent lower and the shekel fell marginally against the dollar.
Stock markets worldwide were also spooked by Israel's actions, with Wall Street poised to open lower while European stocks were also hit by fears violence by militants in the Middle East and abroad would mount.