"We are talking about a terror attack," said police spokesman Micky Rosenfeld.
The blast was heard throughout Jerusalem, and police sealed off the entrance to the city, causing huge traffic jams during the afternoon rush hour. Police set up roadblocks throughout the country, checking ID cards belonging to Palestinians. Two Palestinian organizations in Gaza welcomed the attack but did not take responsibility.
The bomb blew out windows of two buses, although those injured appeared to have been outside.
The attack brought many residents of this city back to 2002 and 2003, when Palestinian suicide bombers killed dozens of Israelis on buses in Jerusalem. Israeli police officials said they did not believe this was the beginning of a new wave of attacks but urged the public to be on the alert.
Two weeks ago, a municipal worker lost a hand when a pipe bomb blew up in a Jerusalem trash can. Police said they are investigating whether the two incidents are related.
The attack comes two days before Jerusalem's first marathon, which will fill the streets with thousands of runners. Workers have been repainting streets and sidewalks, and signs advertising the marathon have been placed throughout the city.
Jerusalem Mayor Nir Barkat called on residents not to let the attack change their daily lives.
"It's important to return to our regular routines as quickly as possible," he said at the scene of the attack. "When terror attempts to disrupt our way of life, the best solution is to get back to normal as quickly as possible. Events in Jerusalem will not be canceled, and Jerusalem will not stop running. We'll continue to develop the city and its cultural events, and I invite the city's residents and visitors to participate in the Marathon which will take place this Friday."
The attack came as tensions are rising along Israel's border with Gaza. Palestinian militants in Gaza fired two long-range Grad rockets at the southern city of Beersheba today, wounding one man and damaging several buildings, including a synagogue. A barrage of mortars landed in other parts of southern Israel.
Netanyahu vowed to stop the rocket fire.
Israeli fire killed eight Palestinians in two separate attacks Tuesday on Gaza that were aimed at militants firing rockets. In one attack, four civilians, including three Palestinian youths playing soccer, were killed. Israeli officials accused militants of using civilians as "human shields" but said they regretted the civilian deaths.
President Barack Obama issued a statement condemning "in the strongest possible terms the bombing in Jerusalem today, as well as the rockets and mortars fired from Gaza in recent days," CNN reported. "There is never any possible justification for terrorism."
Jerusalem has been relatively quiet for the past few years. The last suicide bombing in the capital took place in 2004. In July 2008, two Palestinian tractor operators drove into pedestrians and cars before being shot and killed. There were no fatalities, although several Israelis were wounded.

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