Israeli Prime Minister Benjamin Netanyahu has said that his country will resume "intense fighting" in Gaza if Hamas does not return hostages by Saturday afternoon.
This means the fragile ceasefire would end and the army would resume its offensive until the militant group is defeated.
"In light of Hamas' announcement of its decision to violate the agreement and not release our hostages, last night I ordered the IDF (Israeli Defense Forces) to gather forces inside and around the Gaza Strip," Mr Netanyahu said, speaking after a security cabinet meeting.
"This operation is being carried out at this time. It will be completed in the very near future," he added.
Hamas has begun the gradual release of hostages under the first phase of the ceasefire reached last month, but said yesterday that it would not free any more until further notice.
It accused Israel of violating the terms of the truce with several deadly shootings as well as hold-ups of aid deliveries in Gaza.
US President Donald Trump, a close ally of Israel, said in response that Hamas should release all of the hostages or he would propose cancelling the Israel-Hamas ceasefire, which took effect on 19 January.
"If Hamas does not return our hostages by Saturday noon - the ceasefire will end and the IDF will return to intense fighting until Hamas is finally defeated," Mr Netanyahu said.
It was not immediately clear if he meant the return of detainees who were be due to be released on Saturday, or all of those still held in Gaza.
A Hamas official said that Israeli hostages could only be brought home if the ceasefire was respected, dismissing the "language of threats" after Mr Trump said he would "let hell break out" if they were not freed.
"Trump must remember there is an agreement that must be respected by both parties, and this is the only way to bring back the (Israeli) prisoners.
"The language of threats has no value and only complicates matters," senior Hamas official Sami Abu Zuhri said.
Israel denied holding back aid supplies and said it fired on people who disregard warnings not to approach Israeli troop positions.
Mr Netanyahu vowed earlier that Israel would ensure all of its hostages were returned.
"We will continue to take determined and ruthless action until we return all of our hostages - the living and the deceased," he said following military confirmation of the death of one more Israeli during the Hamas-led attack that started the Gaza war 16 months ago.
Gaza, one of the world's most densely populated areas, has been devastated by Israel's military offensive since October 2023 and is short of food, water and shelter, and in need of billions of euro in foreign aid.
President Trump has enraged Palestinians and Arab leaders and upended decades of US policy that endorsed a possible two-state solution by trying to impose his vision of the territory.
He said the United States should take over Gaza and move its more than two million Palestinian residents so that it can be turned into the "Riviera of the Middle East".
The forcible displacement of a population under military occupation is a war crime banned by the 1949 Geneva conventions.
Palestinians fear a repeat of what they call the Nakba, or catastrophe, when hundreds of thousands of people fled or were driven out during the 1948 war that accompanied Israel's creation. Israel denied they were forced out.
Gazans criticised Mr Trump for saying he would be prepared for "hell" to break out if all the Israeli hostages were not released by Saturday afternoon.
"Hell worse than what we have already? Hell worse than killing? The destruction, all the practices and human crimes that have occurred in the Gaza Strip have not happened anywhere else in the world," said Jomaa Abu Kosh, a Palestinian from Rafah in southern Gaza, standing beside demolished homes.
Read more:
No right of return for Palestinians under Gaza plan - Trump
Latest Middle East stories
The Gaza war has been paused under the ceasefire agreement between Israel and Hamas that was brokered by Qatar and Egypt with support from the US.
More than 48,000 Palestinians have been killed in the conflict, the Gaza health ministry said, and nearly all of the enclave's 2.3 million population internally displaced, causing a hunger crisis.
Some 1,200 people died in the 7 October 2023 Hamas-led attack on southern Israeli communities and about 250 were taken to Gaza as hostages, according to Israeli figures.
President Trump's ideas have introduced new complexity into a sensitive and explosive Middle East dynamic, including the shaky ceasefire between Israel and Hamas.
He is to meet Jordan's King Abdullah this evening for what is likely to be a tense encounter over the redevelopment idea, including a threat to cut aid to the US-allied Arab state if it refuses to resettle Palestinians.
For Jordan, Mr Trump's talk of resettlement comes dangerously close to its nightmare of a mass expulsion of Palestinians from both Gaza and the West Bank, echoing a vision of the country as an alternative Palestinian home that has long been propagated by ultra-nationalist Israelis.
Jordan's concern is amplified by a surge in violence on its border with the occupied West Bank, where Palestinian hopes of statehood are being eroded by expanding Jewish settlement.
United Nations Secretary-General Antonio Guterres said on social media that a resumption of armed conflict should be avoided at all costs because that would lead to "immense tragedy".
Condition of Israeli hostages 'inhumane', says Taoiseach
Meanwhile, Taoiseach Micheál Martin has criticised Hamas for its failure to release Israeli hostages, describing the condition of the detainees as "inhumane".
Speaking at the AI summit in Paris, he said: "The important thing in respect of Gaza is that the ceasefire is upheld. The Hamas statement is not a good statement. Hamas should release the hostages.
"The hostages are in [a] terrible condition - we've seen that with some of the hostages who have been released."
Mr Martin added: "It's inhumane, the conditions in which hostages are still being kept."
Asked to respond to Mr Trump's reassertion that the Palestinian population be removed from Gaza - with no right of return - Mr Martin said he would not provide a running commentary on every statement on the Middle East by the US president.
We need your consent to load this rte-player contentWe use rte-player to manage extra content that can set cookies on your device and collect data about your activity. Please review their details and accept them to load the content.Manage Preferences
But he said: "We support the right of Palestinians to their homeland. We support strongly a two-state solution."
Beyond getting through the phases of the ceasefire, he said, "the neighbouring partner countries can, along with the United Nations and others, the European Union, support the reconstruction of Gaza."
He added: "We need to move fast in terms of confirming the second phase of the ceasefire and that it holds, and that we get a permanent peace, and then we can focus on reconstruction of Gaza, giving shelter, food and support to the people of Gaza.
"Hamas need to be as conscious of that as anybody else."
Tánaiste and Minister for Foreign Affairs Simon Harris said it is a "critical moment for the ceasefire and hostage release deal".
In a statement, he said: "We must avoid a resumption of hostilities, and all sides must honour their commitments under the deal."
Additional reporting Tony Connelly
