The bombing brought back memories of the second Palestinian uprising last decade, a period in which hundreds of Israelis were killed by suicide bombings in Jerusalem and other major cities, and thousands of Palestinians died in Israeli military operations in the West Bank and Gaza Strip.
There was no immediate claim of responsibility, but authorities blamed Palestinian militants and threatened harsh retaliation. The attack came against the backdrop of a rising wave of violence that has threatened a lengthy period of relative calm, and made hopes for a negotiated peace ever more distant. The moderate Palestinian government in the West Bank condemned the violence.
The 3 p.m. bombing occurred near the main entrance to Jerusalem, next to the city's central bus station and main convention center, an area that is crowded with travelers and passers-by. The bomb went off next to a food stand called, in a Hebrew play on words, "a blast of a kiosk." The owner said the name was to remember an earlier attack at the same site.
The blast reverberated throughout Jerusalem and blew out the windows of two crowded buses. Rescuers removed bloodied people from the area on stretchers, as sirens from speeding ambulances wailed in the background.
Authorities said a 60-year-old woman was killed, while two dozen other people were hurt, several critically.
Jerusalem's mayor, Nir Barkat, rushed to the scene and urged people to return to their routines. "We will show the terrorists we are not terrorized," he said.
Tensions have been rising in recent weeks, particularly along Israel's southern border with the Gaza Strip. Hamas, the militant group that controls Gaza, has been firing rockets and mortar shells across the border, and Israel retaliating with airstrikes and other attacks.
In fresh violence on Wednesday, two rockets landed in the southern Israeli city of Beersheba, moderately wounding one man, and mortar shells struck southern Israel.
Israel's Defense Minister Ehud Barak threatened retaliation against Hamas.
"We will not tolerate the harming of Israeli citizens, not in the south and not in Jerusalem," Barak said. "Hamas is responsible for the firing of rockets toward Beersheba today and this responsibility has a price."
Earlier this month, five members of a Jewish settler family were stabbed to death in their sleep at their West Bank home. And on Tuesday, an errant Israeli strike meant for Palestinian militants killed four members of a Palestinian family in Gaza.
Adding to the tensions, peace efforts between the Israelis and the Western-backed Palestinian government have been stalled since September.
The attack drew international condemnations as well. In Washington, President Barack Obama offered condolences and called on those responsible to end such attacks. U.N. Secretary-General Ban Ki-Moon called it "unacceptable."
Egypt, however, warned Israel against any military operation in the Gaza Strip.
"Escalation of violence will not serve the interest of any party and will not serve peace or stability," Foreign Ministry spokesman Menha Bakhoum said in a statement.
Jerusalem's police chief, Aharon Franco, said the bomb was about four pounds (one to two kilograms) and was planted in a small bag on the sidewalk. He said security services were on alert for additional attacks.
He said authorities had no firm leads but were investigating a possible link to a small bombing earlier this month that wounded a garbage collector as he removed the device from a trash can.
"I saw kids crying on the street, lying in blood on the side of the road," said one man who witnessed the blast. Crying on the telephone, he frantically tried to reach his daughter, calming down a bit when he found out she was safe. The man, trembling in shock, refused to give his name.
Radio and TV stations posted emergency numbers for concerned citizens to inquire about relatives.
Bus driver Meir Hagid said he heard a loud explosion as he drove by the site, located near the main entrance to Jerusalem and its central bus station. He halted his vehicle and people got off. He said nobody in his bus was hurt.
Samuel Conik, 20, said he ran to the scene when he heard the explosion and saw fire coming out of a phone booth. Nearby was a badly burned man with bloody legs and his skin peeling off. At the scene, a group of ultra-Orthodox Jews began chanting "Death to Arabs."
Israel's Interior Minister Eli Yishai rushed to the scene and called for swift action. "With these murderers, these terror organizations ... we must act, or we will lose our deterrence," he told Channel 2 TV.
Prime Minister Benjamin Netanyahu delayed a planned trip to Moscow for several hours to deal with the crisis but said he would go forward with the visit later Wednesday.
In the West Bank town of Ramallah, Palestinian Prime Minister Salam Fayyad condemned the bombing "in the strongest terms." His boss, President Mahmoud Abbas, who was traveling in Russia, issued a similar condemnation.
In the Gaza Strip, the Islamic Jihad militant group, which has carried out dozens of attacks, said it was not connected to the blast. But spokesman Khader Habib said the group "applauds all efforts to respond to the crimes committed daily against our people."
During the second Palestinian uprising, violence killed more than 6,000 people on the Palestinian side and more than 1,000 on the Israeli side. Jerusalem suffered dozens of Palestinian suicide bombings that targeted buses and restaurants. The violence, which began in 2000, largely subsided five years later.
Jerusalem last experienced a suicide bombing in 2004, and the last suicide bombing in Israel occurred in 2008 in the southern town of Dimona.
Even so, Jerusalem has experienced other deadly violence. In early 2008, eight students at a Jerusalem seminary were killed when Palestinian gunmen entered the school and opened fire.
Palestinians also carried out several attacks with construction vehicles against Jerusalem in the past few years that ended with fatalities when the drivers rammed their vehicles into bystanders.