The Middle East is on edge after a dramatic escalation that saw top Hamas leader Ismail Haniyeh killed in a strike in the Iranian capital of Tehran early Wednesday.

Iranian officials are blaming Israel for what they say is an assassination, but a spokesman for Israel's government on Wednesday declined to comment on the death of Haniyeh, Reuters reported.

"Israel was very clear - Haniyeh was a dead man walking," Charles Lister, a senior fellow at the Middle East Institute in Washington, wrote in a post on X following the news. "Once out of Doha, it was game time. Coming hours after the killing of Fuad Shukr in Beirut, the Middle East is on an absolute knife-edge now."

Just one day prior, Israeli forces declared that they killed Hezbollah's second-in-command, Fuad Shukr, in a strike on a densely populated area of Beirut, in retaliation for a strike last week on the Israeli-occupied Golan Heights that killed several children. Israel blames Hezbollah, an Iranian-backed Lebanese militant organization, for the attack, a charge the group has thus far denied.

Haniyeh served as the chief of Hamas' politburo and was seen as a more relatively moderate figure within the organization — importantly, he led cease-fire negotiations with Israel and was the face of the group's regional diplomatic efforts.

The alleged Israeli killing of Haniyeh marks a blow to Hamas and essentially torpedoes any near-term chances of a cease-fire between the Palestinian militant group and Israel in the brutal war in Gaza that is now in its 10th month.

Qatari Minister of Foreign Affairs Sheikh Mohammed bin Abdulrahman Al Thani wrote on X: "Political assassinations & continued targeting of civilians in Gaza while talks continue leads us to ask, how can mediation succeed when one party assassinates the negotiator on other side? Peace needs serious partners & a global stance against the disregard for human life."

Qatar's government has long hosted Hamas' political leadership. Haniyeh was made the head of Hamas' political wing in 2017 before moving to Qatar in exile in 2019. After leaving Gaza he was succeeded by Yahya Sinwar, a much more hard-line Hamas devotee. Sinwar is believed to be the mastermind of the Oct. 7 attack on Israel that killed some 1,200 people and took a further 253 hostage, 116 of whom have since been freed.

Israel's military response to the attack has killed more than 39,000 people in Gaza, health authorities in the blockaded enclave say, and destroyed more than half of all its buildings, according to the U.N.

While cease-fire talks have been ongoing for months with no success, the more extreme Sinwar — who is based inside Gaza and is said to have the last word on Hamas' major decisions — often stalls or cuts off communications during negotiations.

Haniyeh served as "a key interlocutor in talks for a cease-fire in Gaza," Victor Tricaud, a senior analyst at consulting firm Control Risks, told CNBC.

"His killing will throw the talks off course and means that the far less compromising position of Hamas' leader in Gaza, Yahya Sinwar, will face less moderating counterweight from within the group," Tricaud said. "A cease-fire deal will likely remain out of reach for several more months."

U.S. Secretary of State Antony Blinken meanwhile continued to stress that a cease-fire deal is "the enduring imperative" while speaking at a forum in Singapore, and denied that the U.S. had any knowledge of the alleged Israeli strike on Haniyeh.

The U.S. State Department in 2018 designated Haniyeh a terrorist, describing him as "a proponent of armed struggle, including against civilians," and declared that Hamas operations had been responsible for "an estimated 17 American lives killed in terrorist attacks."

Iran, Hamas and Hezbollah have all vowed revenge; but the choice of actions they take against Israel could lead to further escalation or plunge the region into a larger war.

Israeli Defense Minister Yoav Gallant told Israel Defense Forces troops on Wednesday that Israel "doesn't want a war, but is preparing for all possibilities." Iran's leadership meanwhile has said that the alleged Israeli strike is grounds for "severe punishment" and that the country must "pay a heavy price."

An all-out war between Israel and Iran — and Iran's proxies such as Hezbollah — would be devastating to all sides involved. But not responding at all may not be an option for Iran's leaders who will face pressure to deliver a show of force.

Haniyeh's death in Tehran "puts Iran's leadership under strong pressure from the Revolutionary Guards to retaliate after another attack on Iranian soil," Torbjorn Soltvedt, principal MENA analyst at Verisk Maplecroft, told CNBC.

"Israel and Iran have already demonstrated their ability to pose a serious threat to each other, but the risk of another cycle of attacks is now increasing."

Still, many regional analysts expect Iran to be conservative in its reaction, as so far the Islamic Republic has shown little interest in going to war with Israel to help Hamas. Tit-for-tat exchanges of missile strikes between Iran and Israel in April saw attacks that were essentially measured and telegraphed to avoid significant damage or casualties.

Tricaud at Control Risks expects any retaliation "to be very calibrated – likely leveraging Iran-backed proxy groups," he said. "It remains unclear that Tehran's intent to avoid a full-blown regional conflict with Israel has changed as a result of Haniyeh's killing."

While the strike does constitute a major violation of the Islamic Republic's sovereignty, he added, "Tehran has repeatedly shown that it does not want to be dragged in a direct conflict with Israel over the war in Gaza."