Acting Israeli Prime Minister Ehud Olmert has weight launching a first Israeli offensive against the new Hamas-led Palestinian government after the blast was claimed by Palestinian militants.
The attack has drawn international condemnation, with Japan warning it may halt aid to the Hamas-led Palestinian Authority if it does not move swiftly to condemn violence.
The European Union and the United States have already frozen aid payments to Hamas, which is yet to respond to the blast.
Israel, already on a state of high alert for the Jewish Passover festival, has deployed reinforcements on all major highways and the border with the occupied West Bank, where the 21-year-old Islamic Jihad suicide bomber lived.
The bomber's father was arrested after Israeli troops raided a West Bank village near Jenin.
In a video released by Islamic Jihad, the bomber said the attack was dedicated to the thousands of Palestinian prisoners in Israeli jails.
Government sources said Mr Olmert will meet with his interim cabinet and army chiefs to decide on a response.
Defence Minister Shaul Mofaz is likely to recommend that the northern West Bank be completely sealed off and that operations against Islamic Jihad be intensified, including so-called targeted killings.
A senior official from Mr Olmert's Kadima party described the attack as potentially the opening shot in a full-scale confrontation with Hamas.
"To destroy a terrorist state -- I certainly think that is what's required," Roni Bar-On told Israel Radio.
"We have a very wide array of potential targets. They (Hamas) cannot be allowed to hide beneath the ugly wings of Islamic Jihad."
Deadly attack
Nine people were killed and more than 50 wounded in the suicide blast, the deadliest such attack in 20 months.
The bomb went off next to a fast food stand at lunchtime in the southern Neveh Sha'anan district, close to the site of Tel Aviv's old bus station. The area has been the scene of several previous attacks, including one in January.
Medical sources said nine people were killed in the blast, plus the bomber who had been wearing an explosives vest.
Witnesses told police they had seen a blue vehicle fleeing the scene of the attack seconds before the explosion occurred.
A police spokesman later confirmed that three Palestinian suspects had been detained on the main motorway from Tel Aviv to Jerusalem on the basis of the witness testimony.
A spokesman for Islamic Jihad told news agency AFP the attack was a "response to the Israeli massacres and siege imposed on our people".
It followed a spate of Israeli strikes on the Gaza Strip, carried out in response to rocket attacks, which left 18 Palestinians dead.
The Israeli army carried out a raid in the Gaza strip just hours after the suicide bombing.
Israeli helicopters fired missiles at a metal factory believed to be used by militant Palestinian groups for assembling weapons. No one was killed in the airstrike.
Condemnation
In a brief speech to parliament, Mr Olmert pledged "to do whatever is needed to deal with the terrorists and their dispatchers".
"Today, with all its pain, is a celebration of the power of Israeli democracy which we will not allow to be derailed by anyone," he said.
Mr Olmert, who refuses to deal with Hamas, has vowed to fix the final borders of the Jewish state unilaterally within his term of office as long as the Palestinian Authority is led by what he regards as a terrorist organisation.
Moderate Palestinian Authority president Mahmoud Abbas condemned what he called an act of terrorism but the radical Islamist group Hamas, which recently formed a new government, did not condemn the blast.
"The Israeli occupation bears the responsibility for this situation as a consequence of its crimes against our women and children, as well as the assassinations (and) arrests," Hamas spokesman Sami Abu Zuhri told AFP.
The difference in response drew a blunt warning to Hamas from the US which, like the EU, already blacklists the group as a terrorist organisation.
"Defence or sponsorship of terrorist acts by officials of the Palestinian cabinet will have the gravest effects on relations between the Palestinian Authority and all states seeking peace in the Middle East," White House spokesman Scott McClellan said.
UN/US critical
The lack of condemnation from Hamas also drew criticism from UN chief Kofi Annan.
"(Annan) calls on the Palestinian Authority to take a clear public stand against such unjustifiable acts of terrorism, noting that president Abbas has done so and regretting that the new government has not," his spokesman Stephane Dujarric said.