Islamist Hamas, which controls the Gaza Strip since June 2007, said Ahmed Al-Jabari, who headed the organisation's armed wing, the Izz al-Din Al-Qassam Brigades, died along with his son after their car was targeted by an Israeli missile.
"The occupation has opened the gates of hell on itself," the militant faction said after the assassination.
"The resistance's options are now open and they include suicide attacks and quality attacks in Israel cities," Ismail al-Ashkar of Hamas said vowing revenge.
Israel Defence Forces (IDF) said Jabari's assassination marks the beginning of Operation Cloud Pillar against Gaza terrorists.
Israel's Air Force also pounded some twenty sites in the coastal Strip which were termed as rocket launching pads by the army as a pre-emptive measure to prevent rocket and mortar attacks.
Gaza militants have fired about 100 rockets and mortars on Israel's southern areas in the last five days.
The attack came amid signals that Egypt was about to broker another informal truce.
IDF also launched tank attacks amid speculations that an escalation could even lead to a ground operation by Israel in Gaza.
IDF has decided to deploy additional infantry units in the south ahead of any such move.
Palestinian sources said that some six people were killed in the aerial attacks that followed Jabari's assassination.
They claimed that Israel also tried to kill Ra'ad al-Atar, another senior Izz al-Din al-Qassam commander, who survived the attack.
Israel's internal security agency Shin Bet domestic confirmed that it had carried out the attack on Jabari with the Air Force because of his "decade-long terrorist activity."
IDF spokesman Yoav Mordechai said the airstrike indicated the beginning of a campaign to target Hamas and Islamic Jihad terror organisations in Gaza.
"The first aim of this operation is to bring back quiet to southern Israel, and the second target is to strike at terror organisations," Mordechai said.
"The purpose of this operation was to severely impair the command and control chain of the Hamas leadership," the Israeli military said in a statement.
"(Jabari's) killing sends a message to Hamas elements in Gaza that if they continue to promote terror activity against the State of Israel they will be terminated," it added.
The Palestinian militant factions immediately called for revenge vowing retaliation.
"Israel has declared war on Gaza and they will bear the responsibility for the consequences," Islamic Jihad said.
Israel last staged a full-scale attack on Gaza during a three week conflict in 2008 and 2009 in which 1,400 Palestinians and 13 Israelis were killed.
Jerusalem/Gaza: Renewing targeted assassination, an Israeli airstrike on Wednesday killed Islamist Hamas' top military commander in the Gaza Strip, evoking war cries from militant Palestinian faction that vowed revenge by committing suicide attacks in Israel.
First Published: Wednesday, November 14, 2012, 21:06