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The assassination of Ahmed Jabari, head of the Hamas military wing, is the beginning of a larger military strike against Gaza militants, Israel said.
Israel's military spokeswoman Avital Leibovitch says the attack is 'start of a broader operation' called Pillar of Defence.
"All options are on the table," IDF's official account tweeted. "If necessary, the IDF is ready to initiate a ground operation in Gaza."
Israel radio quoted IDF's Brig-Gen Mordechai saying that ground forces are standing ready to enter Gaza should the order be given.
Jabari assassination was part of operation in which IDF hit 20 targets across Gaza Strip, leaving six people killed Hamas said.
A second senior Hamas military official has also been killed in an airstrike. Hareetz reports that Hamas military wing chief in Rafah, Raed al-Atar, has also been killed by the IDF.
Meanwhile, the Hamas ministry of interior has reportedly been evacuated.
Hamas hit back at Israel's offensive saying the airstrike had "opened the gates of hell".
The airstrike hit Jabari while he was travelling in Gaza City. People and security personnel flocked to the scene of the strike. Hamas police cordoned off the area around a hospital where at least one body was taken.
The country's Shin Bet intelligence service justified the attack saying it was because of his "decade-long terrorist activity".
"He was the senior commander of the Hamas military wing in the Gaza Strip. As part of his status and activity, Jabari was responsible in the last decade for all terrorist activities against Israel from Gaza," it said.
"Jabari was responsible for financing and directing military operations and attacks against Israel. His elimination today is a message to Hamas officials in Gaza that if they continue promoting terrorism against Israel, they will be hurt."
The killing marks the resumption of Israel's military strategy to assassinate Hamas leading figures. Jabari is the most senior official to be killed since Operation Cast Lead in Gaza four years ago.
He was reportedly responsible for the 2006 attack on Kerem Shalom, when IDF soldier Gilad Shalit was kidnapped and two other soldiers killed.
The attack came after tensions between Hamas and Israel erupted following a wave of more than 60 rockets fired against Israel at the end of October, casuing the IDF to launch aistrikes on Gaza City.