Israel's prime minister has pledged to act "vigorously and responsibly" to restore security after a bomb exploded at a bus stop in central Jerusalem.
One person was killed and more than 30 others were injured after the blast at a crowded bus stop in Jerusalem.
The city suffered a spate of bus bombings by Palestinian militants between 2000 and 2004 but attacks had stopped in recent years.
Benjamin Netanyahu said the attackers had sought to try the country's will.
"They are trying to test our resolve... [but we] have an iron will to defend the state and its citizens," a statement from the prime minister's office said.
"We will act vigorously, responsibly and prudently in order to maintain the quiet and the security that have prevailed here over the past two years."
Mr Netanyahu delayed a scheduled trip to Moscow - where he is due to hold talks with the Russian leadership - by several hours to meet defence and security officials after the blast.
US President Barack Obama condemned the Jerusalem attack "as well as the rockets and mortars fired from Gaza in recent days".
He urged all parties to do "everything in their power" to prevent further violence and civilian casualties.
UN Secretary General Ban Ki-moon said such attacks were "unacceptable".
Witnesses said the force of the blast - which officials said originated in a suitcase left on the pavement near the bus stop - shook buildings over a wide area.
Motti Bukchin, a volunteer with the Israeli emergency service Zaka, said he and his colleagues were in a meeting nearby when they heard the blast.
"When we arrived at the site of the attack we saw two women lying in huge pools of blood on the pavement. We began resuscitation immediately and were soon joined by other medical personnel. The two women were evacuated to hospital in serious to critical condition," he said.
Israeli police spokesman Micky Rosenfeld told the BBC they were searching for a suspect and a vehicle believed to have been used in planting the bomb.
Jerusalem was hit by a series of bombings - mostly targeting buses and restaurants - during the second Palestinian uprising that began in 2000. However, the attacks have stopped in recent years. Jerusalem last experienced a bus bombing in 2004.
The latest attacks comes amid heightened tension in the Gaza Strip.
The BBC's Jon Donnison, in Gaza, says none of the militant factions there has said it was involved in the Jerusalem attack.
But an Islamic Jihad leader said a Palestinian attack would be a "natural response" to this week's Israeli strikes in Gaza.
On Wednesday, Israeli military aircraft launched strikes east of Gaza City after Palestinian militants fired two rockets into southern Israel.
Islamic Jihad said it had carried out the rocket attacks in reprisal for the killing of eight Palestinians near Gaza City on Tuesday. Four of those killed were members of one family, two of them were children.
Hamas government spokesman Taher Nono has refused to comment on the Jerusalem explosion.
However, Palestinian Prime Minister Salam Fayyad condemned the bombing, calling it "a terrorist attack".