The offensive will include airstrikes and artillery attacks in Gaza, and arrest raids in the northern West Bank, where yesterday's bomber came from, a military official said on condition of anonymity under military regulations.
As a last resort, Israel could re-enter Gaza, which Israel evacuated last month. Israeli media reported that troops would also retake Palestinian towns, and conduct house-to-house searches.
The threatened Israeli response to the bombing in the central town of Hadera ratcheted up pressure on Palestinian leader Mahmoud Abbas to confront militant groups. Abbas has refused to crack down on armed groups such as Islamic Jihad, fearing civil war.
Sharon said the military operation was necessary because of Abbas' refusal to take action, and said it would be impossible to resume peace talks until the Palestinians rein in the militants.
"Unfortunately the Palestinian Authority has not taken any serious action to battle terrorism," Sharon said before meeting the visiting Russian foreign minister, Sergey Lavrov. "We will not accept under any circumstances a continuation of terrorism. Therefore our activities will be broad and nonstop until they halt terrorism."
"The state of Israel would very much have liked to move peace efforts forward," he added. "To my regret, as long as terror continues we shall not be able to move forward as we would have wished."
In an initial step, Israel carried out four airstrikes in the Gaza Strip early today, targeting open fields used by militants to fire rockets, the army said.
Islamic Jihad said yesterday's bombing was to avenge the killing of one of its West Bank leaders earlier in the week.
The suicide bombing embarrassed Abbas, who hours before the attack demanded the militant groups stop violating a cease-fire declared last February.
The small Islamic Jihad group signed on to the truce last spring, but has repeatedly flouted the cease-fire by claiming it has the right to retaliate for any perceived Israeli violations. It has carried out four suicide bombings inside Israel since the truce.
The much larger Hamas militant group, which plans to run in January parliamentary elections, has largely scaled back its attacks since the truce declaration. In contrast, Islamic Jihad is not participating in the vote and has much less to lose by continuing to attack Israel.
Israeli officials accused arch-enemies Iran and Syria of assisting the attackers, noting that Islamic Jihad is funded by Tehran and is headquartered in Damascus.
"This infrastructure is murderous and we will try to deal with it and silence it," Amos Gilad, a senior Defence Ministry official, told Israel Radio.
The attack came hours after Iranian President Mahmoud Ahmadinejad praised suicide bombings and said Israel should be "wiped off the map." Vice Premier Shimon Peres called for Iran to be tossed out of the United Nations for the president's comments, which drew wide international condemnation.
Sharon and Defence Minister Shaul Mofaz approved the latest offensive in a series of overnight telephone calls, Foreign Ministry spokesman Mark Regev said.
"Islamic Jihad has declared war on every Israeli civilian and of course we're 100 percent entitled to take the appropriate action to defend our civilians," Regev said.
"Ultimately, Israel still hopes the Palestinian Authority will follow through on their own commitments to disarm these groups and that will make the necessity for Israeli action superfluous."Reuse content