With initial indications showing a resounding Hamas victory, Israel now has to face up to the fact that the Islamist faction will be in charge of forming the next Palestinian government.
And two months before Israel's own election, whose course is likely to be radically altered by the outcome of Wednesday's poll, officials have soberly admitted that Hamas's success is likely to spell big problems at home.
In a bid to urgently address the new developments, Acting Prime Minister Ehud Olmert is to convene top-level talks late on Thursday with senior political and defence officials to formulate an Israeli response.
Israeli Defence Minister Shaul Mofaz and Foreign Minister Tzipi Livni will both attend the meeting.
The prospect of a Hamas-led government is the biggest crisis to face the acting Israeli leader since he assumed power after Prime Minister Ariel Sharon suffered a massive brain haemorrhage on 4 January.
But ahead of a formal announcement of the results, due at 7pm (1700 GMT), officials were under orders not to comment, a senior government official told AFP.
With Israel's own elections looming in March, Olmert, who heads the newly-formed centrist Kadima party, is now facing a critical challenge which could have a dramatic impact on his party's hitherto positive ratings in the polls.
Should he take a lenient line towards Hamas, it would play directly into the hands of Benjamin Netanyahu, the hawkish leader of the right-wing Likud party, who is likely to portray last year's Gaza pullout as a prize for Hamas.
Hamas supporters are celebrating
an election victory
But an intransigent approach to a Hamas-led government would likely call down international pressure on Israel to comply with earlier commitments reached with the Palestinian Authority (PA).
Hamas's apparent victory prompted a flurry of negative reactions from across the political spectrum, with the right-wing heaping scorn on the government for allowing Hamas to participate.
"If they have really taken over the administration, we are facing an absolutely hopeless situation from a political point of view," former foreign minister Silvan Shalom told army radio.
Israel had made "a colossal mistake" and would now be under huge international pressure to conduct negotiations with Hamas, he warned.
Yuval Steinitz, head of the parliamentary committee on foreign affairs and defence, likened the Hamas victory to "an earthquake" and a "tragic defeat for Israel in the war against terrorism".
Even those on the left expressed dismay, with Labour chairman Amir Peretz saying he had "no intention" of conducting negotiations with Hamas as long as it was dedicated to Israel's destruction.
Yossi Beilin: Israel played a big
role in strengthening Hamas
"The Palestinians have given their support to extremist elements and it is up to the government to take the necessary action to ensure (Israel's) security," he said.
Peres, Olmert's number two in Kadima, cast doubt over Hamas's ability to govern effectively given its international pariah status.
"Hamas will not be able to control the Palestinian Authority and pay the salaries (of over 100,000 civil servants) without international aid which will apparently cease," he told army radio.
But some politicians blamed Israel for fanning the flames which led to such a resounding Hamas victory.
Yossi Beilin, head of the dovish Meretz party told public radio that "Israel played a big role in weakening the Palestinian Authority and strengthening Hamas."
The fact that last year's Gaza withdrawal was undertaken unilaterally, had "greatly strengthened" Hamas, which took credit for forcing Israel out, he said.
Mohammed Barakeh, head of the Arab Israeli Hadash party, said Israel would now have "to reap what it had sown", but noted it was likely to use the Hamas victory as an excuse to renege on earlier commitments agreed with the Palestinians.
During the previous Palestinian elections in 1996, which were not contested by the radical movement, there was calm on the ground.
But immediately afterward, Hamas launched a series of devastating attacks, drastically weakening the Labour-led government of then-premier Shimon Peres, and paving the way for Netanyahu's election.