With the great success and flood of cash revenue coming in off of Half-Life, programmers set to work on an even heavier modification of the Goldsrc engine. This is technically why all future expansions and titles up until the release of Half-Life 2 are developed by third-parties.
The new engine takes several years to finish and would make use of lighting, physics, particle effects and model animation in unprecedented and revolutionary new ways. It is dubbed simply “Source” and thanks to its modular nature it is still receiving amazing new features and upgrades with every new title that uses it. Meanwhile the writing and art teams work very, very secretly on concepts for a sequel to Half-Life.