Hamas was due to hand over the bodies of Shiri Bibas and her two sons Kfir and Ariel on Thursday, along with the remains of a fourth hostage under the ceasefire deal that has halted fighting in Gaza since last month.
Four bodies were delivered and the identities of the Bibas boys and the fourth hostage, Oded Lifshitz, were confirmed.
But Israeli specialists said the fourth body was that of an unidentified woman and not Bibas, who was kidnapped along with her sons and her husband, Yarden, during the Hamas attack on Israel on October 7, 2023.
Basem Naim, a member of the Hamas political bureau, said "unfortunate mistakes" could occur, especially as Israeli bombing had mingled the bodies of Israeli hostages and Palestinians, thousands of whom were still buried in the rubble.
"We confirm that it is not in our values or our interest to keep any bodies or not to abide by the covenants and agreements that we sign," he said in a statement.
Hamas said separately that it would investigate the Israeli assertions and announce the results.
The failure to hand over the body and the staged public handover of the four coffins on Thursday caused outrage in Israel and drew a threat of retaliation from Netanyahu.
"We will act with determination to bring Shiri home along with all our hostages - both living and dead - and ensure Hamas pays the full price for this cruel and evil violation of the agreement," he said in a video statement.
He accused Hamas of acting "in an unspeakably cynical manner" by placing the body of a Gaza woman in the coffin instead of Bibas.
Hamas said in November 2023 that the children and their mother had been killed in an Israeli air strike and Thawabta said Netanyahu "bears full responsibility for killing her and her children".
But the Israeli military said intelligence assessments and forensic analysis of the bodies of the Bibas children indicated that they were deliberately killed by their captors.
Netanyahu gave no details on a possible Israeli response, but the incident underscored the fragility of the ceasefire agreement reached with US backing and with the help of Qatari and Egyptian mediators last month.
Six living hostages are due for release on Saturday in exchange for 602 Palestinian prisoners and detainees, according to Hamas, and the start of negotiations for a second phase of the ceasefire is expected in the coming days.
"Hamas must return the hostages as agreed in the ceasefire- the living and the deceased," Israeli military spokesperson Nadav Shoshani said in a statement on social media platform X.
"They have to bring Shiri back, and they have to release the six living hostages expected tomorrow."
As the tension over the Gaza ceasefire rose, Netanyahu ordered the Israeli military to intensify operations in another Palestinian territory, the occupied West Bank, after several explosions blew up buses standing empty in their depots near Tel Aviv.
No casualties were reported but the explosions were a reminder of the campaign of suicide attacks on public transport that killed hundreds of Israeli civilians during the Second Intifada in the early 2000s.
Both sides have repeatedly accused the other of ceasefire violations, with Hamas threatening to delay the release of hostages over what it said was Israel's refusal to allow housing materials and other aid into Gaza, a charge Israel denied.
"It's like they make a joke of us," said 75-year-old Ilana Caspi.
"We are so in grief and this is even more, it's like you make a punch again, another one and another one, it's really terrible."
The Red Cross told Reuters it was "concerned and unsatisfied" by the fact that the handover of the bodies had not been conducted privately and in a dignified manner.
One of the main groups representing hostage families said they were "horrified and devastated" by the news that Shiri Bibas' body had not been returned, but called for the ceasefire to continue to bring back all the 70 hostages still in Gaza.
"Save them from this nightmare," the Hostages and Missing Families Forum said in a statement.
Despite the outrage over Shiri Bibas, there was no indication that Israel would not take part in talks over a second phase of the ceasefire deal.
The Israel Hayom newspaper reported that Israeli negotiators were considering seeking an extension of the 42-day ceasefire, instead of moving to a second phase, which would involve talks over hard-to-resolve issues including an end to the war and the future of Hamas in Gaza.
