The 67-year-old wheelchair-bound cleric was killed along with seven other Palestinians when a helicopter fired three missiles as he left a mosque in the Sabra quarter of the city, witnesses and security sources said.

Two of his bodyguards and his son-in-law were among the victims, said sources at Gaza's Al-Shifa hospital, where an AFP correspondent saw Yassin's body.

Israel had made little secret of its intention to eliminate the leadership of Hamas in the aftermath of twin suicide bombings in the southern port of Ashdod last week, claimed by both Hamas and the Al-Aqsa Martyrs Brigades.

Deputy Defense Minister Zeev Boim, in the first Israeli reaction to the strike, said Yassin deserved to die for his part in the deaths of hundreds of Israelis since the start of the Palestinian intifada in September 2000.

"Sheikh Yassin deserved to die for all the terrorist attacks committed by Hamas," Boim told public radio.

Yassin's was the highest-profile targeted killing by Israeli forces since the start of the uprising three and half years ago.

Boim hinted that more attacks on Palestinian militant leaders were possible, warning that "no terrorist leader will be immune".

Confirming the death, Israeli army spokeswoman Major Sharon Feingold said Yassin had been "responsible for numerous murderous terror attacks, resulting in the deaths of many civilians, both Israeli and foreign."

"The Hamas leadership, led by Yassin, was directly involved in planning directing and launching terror attacks carried out by the organization," she told AFP.

Following the attack, Israel completely closed down the Gaza Strip and the West Bank, she added.

Hamas' armed wing, the Ezzedine Al-Qassam Brigades, vowed to kill "hundreds" of Israelis in retaliation.

"Those who have taken the decision to kill Sheikh Yassin have signed the death warrant for hundreds of Zionists," said a statement received by AFP.

The statement also hinted that revenge attacks would be carried out against US targets.

"The Zionists would not have perpetrated such an act without obtaining the green light from the terrorist American administration and it must assume responsibility for this crime," it added.

Hamas' political leader in the Gaza Strip, Abdulaziz Rantissi, made a declaration of war in the aftermath of the strike.

"War is henceforth open with these murderers, these criminals and these terrorists," Rantissi told the Gulf-based satellite channel Al-Arabiya.

"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.

"Inside Palestine, there will be no security for the Zionists and Jews," Rantissi vowed to a background of chants from hundreds of supporters calling for jihad, or holy war.

Thousands of Palestinians poured onto the streets of Gaza in the aftermath of the strike, marching towards Yassin's home.

Thousands more took to the streets in the West Bank, calling for revenge.

Many set fire to tyres, blanketing the skies above Gaza in thick black smoke, an AFP correspondent reported.

Palestinian leader Yasser Arafat condemned the assassination, and called for three days of mourning.

Palestinian prime minister Ahmed Qorei denounced the killing as a "big and atrocious crime."

For his part, Palestinian negotiations minister Saeb Erakat "strongly condemned this ignoble crime perpetrated by Israeli forces."

"The Israeli government has thus chosen the path of escalation and confrontation," Erakat added, demanding international protection for the Palestinians.

"This new crime must move the international community to think seriously about providing international protection for the Palestinian people."

For its part, the Al-Aqsa Martyrs Brigades, a radical offshoot of Arafat's Fatah movement, promised a response "in the coming hours", an anonymous caller told Al-Arabiya television Monday.

Earlier, a statement from the group received by AFP said "thousands" of Israelis would be targeted in retaliation, naming Defense Minister Shaul Mofaz as its prime target.

It called in a statement received by AFP for all Palestinian factions to "proclaim a war without mercy against the Zionist people."

"We promise the Palestinian people that we will avenge the assassinations of the Nazi terrorists," added the statement.

In Cairo, hundreds of students at Al-Azhar University called for revenge, in a demonstration on campus.

"The Jews have killed Yassin, where is the response of the Muslims?" the students chanted. "Sharon, coward, Yassin's blood is not worthless," they warned Israeli Prime Minister Ariel Sharon.

The demonstrators urged the Ezzedine al-Qassam Brigades, the military wing of Hamas, to "avenge" the assassination of the founder of the Palestinian radical movement.