Israel has confirmed it tried to assassinate a militant from the Islamic Jihad group in a targeted air strike.
The attack happened soon after leaders of both sides sat down for important talks in Jerusalem, later described as disappointing by the Palestinians.
Targeted killings of Palestinian militants by Israel had been on hold since a truce was agreed in February.
A senior Israeli official warned such attacks could continue if Palestinian leaders do not stop the militants.
A senior aide to Mr Sharon said such air strikes may continue during Israel's withdrawal of Jewish settlements from the Gaza Strip if militant attacks continue - even if it means "major collateral damage".
"Israel will act in a very resolute manner in order to prevent terror attacks and [militant] fire while the disengagement is being implemented," said Brigadier-General Eival Giladi was quoted by the paper as saying.
"If pinpoint response proves insufficient, we may have to use weaponry that causes major collateral damage, including helicopters and planes, with mounting danger to surrounding people."
Translation: we may have to kill your elderly, women, and children.
Shockingly, the summit failed to make any progress.