The truce paved way to some humanitarian aid into Gaza after much of the coastal territory of 2.3 million people was reduced to wasteland by seven weeks of Israeli bombardment in retaliation for a deadly rampage by Hamas militants on October 7.
However, a deadly shooting in Jerusalem was a potent reminder of the potential for violence to spread.
Israel, which has demanded Hamas release at least 10 hostages per day to keep the cease-fire going, said it received a list at the last minute of those who would go free on Thursday, allowing it to call off plans to resume fighting at dawn.
"In light of the mediators' efforts to continue the process of releasing the hostages and subject to the terms of the framework, the operational pause will continue," the Israeli military said in a statement, released minutes before the truce was due to expire.
Hamas, which freed 16 hostages on Wednesday while Israel released 30 Palestinian prisoners, also said the truce would continue for a seventh day.
U.S. Secretary of State Antony Blinken, on his third visit to the Middle East since the war began, said efforts were continuing to prolong the truce.
"We have seen over the last week the very positive development of hostages coming home, being reunited with their families. And that should continue today," he said during a meeting with Israeli President Isaac Herzog.
"It's also enabled an increase in humanitarian assistance to go to innocent civilians in Gaza who need it desperately. So this process is producing results. It's important, and we hope that it can continue," Blinken added.
So far Hamas has released 97 hostages during the truce. Among them are 70 Israeli women and children, each freed in return for three Palestinian women and teenage detainees, plus 27 foreign hostages freed under parallel agreements with their governments.
With fewer Israeli women and children left in captivity, extending the truce could require setting new terms for the release of Israeli men, including soldiers.
Shortly after the agreement, Israeli police said two Palestinian attackers opened fire at a bus stop during morning rush hour at the entrance to Jerusalem, killing at least three people. Both attackers were "neutralized," police said.
"This event proves again how we must not show weakness, that we must speak to Hamas only through (rifle) scopes, only through war," said hard-right National Security Minister Itamar Ben-Gvir at the site of the attack.
The conditions of the cease-fire, including the halt of hostilities and the entry of humanitarian aid, remain the same, according to a Qatar foreign ministry spokesperson.
Qatar has been a key mediator between the warring sides, along with Egypt and the United States.
Hamas had earlier said Israel had refused its offer to hand over seven women and children plus the bodies of three others.
The militant group did not name the dead but said on Wednesday the youngest hostage, 10-month-old Kfir Bibas, had been killed along with his four-year-old brother and their mother in Israeli bombardment, a claim Israel said it was checking.
Israel has sworn to annihilate Hamas, which rules Gaza, in response to the October 7 rampage by the militant group, when the Middle Eastern nation says gunmen killed 1,200 people and took 240 hostages.
Until the truce, Israel bombarded Gaza for seven weeks.
Palestinian health authorities deemed reliable by the United Nations say more than 15,000 Gazans have been confirmed killed, around 40% of them children. A further 6,500 are missing, many feared still buried under rubble.
Two-thirds of Gazans are homeless, most sheltering in the south after Israel ordered the complete evacuation of the northern half of the tiny coastal strip. Once the truce is over, Israel is expected to extend its ground campaign into the south.
Gazans have been able to use the week-long truce to venture out, visit abandoned and destroyed homes, and dig scores more bodies out of the wreckage. But residents and international agencies say the aid that has arrived so far is still trivial compared to the besieged enclave's vast humanitarian needs.
Those who fled the north of the Gaza Strip, including Gaza City, have still been blocked from returning. Many thousands of families are sleeping rough in makeshift shelters with only the belongings they could carry.
"What is a truce that doesn't bring us back home? Israeli soldiers on tanks fired at us when we tried to go back to check on our homes in Gaza City after we heard it was bombed," said Mohammad Joudat, 25, a displaced business administration graduate, speaking in Deir al-Balah in the southern Gaza Strip.
The United States, which has strongly backed its ally so far, is urging Israel to narrow the zone of combat and clarify where Palestinian civilians can seek safety during any Israeli operation in southern Gaza, U.S. officials said on Wednesday, to prevent a repeat of the massive death toll so far.
U.N. Secretary-General Antonio Guterres said on Wednesday the Gaza Strip was in the midst of an "epic humanitarian catastrophe," and he and others called for a full cease-fire to replace the temporary truce.
Israel rejects a permanent cease-fire arguing this benefits Hamas, a position backed by Washington.
Jordan will host a conference attended by the main U.N., regional and international relief agencies on Thursday to coordinate aid for Gaza, official media said.
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