The blast followed another suicide bombing at an army base outside Tel Aviv on Tuesday that killed seven in addition to the attacker and wounded more than a dozen.
The bomber struck at the popular Cafe Hillel on a strip with many restaurants and small shops. Ambulances rushed to the residential neighborhood, and workers carried away the wounded on stretchers amid screams and sobbing.
Police said the bomber managed to get into the cafe even though two security guards were posted at the entrance — one inside the door and one outside. Jerusalem police commander Mickey Levy told Israel Radio that one of the guards saw the bomber and tried to stop him, and that he then set off the bomb.
"I have a store next to the cafe. I arrived just a few moments after the blast. I saw things that just can't be described, there are no words," said a witness who identified himself only as Shavi.
At least six were killed in addition to the bomber and more than 30 were wounded, according to the Magen David Adom rescue service.
Hundreds of people milled about at the spot where the blast shattered the cafe's front windows and knocked down its sign. One body lay at the entrance covered in a white blanket, and the street was strewn with glass.
"All of a sudden there was a huge boom and shrapnel and glass shards filled the house," said a witness who identified herself only as Odelia. "I went to my son's room and there was glass all over the bed and it's a miracle that he wasn't hurt ... The whole neighborhood was terrified."
Inside the cafe, one of its support columns was splattered with blood.
The blast set off the siren alarms of dozens of parked cars nearby. Police were breaking windows of cars to check if they contain bombs.
Police cordoned off the area while rescue workers treated sobbing victims, and a dazed, wounded man sat on the street, holding a bloody T-short to his head.
The suicide bombers struck while Prime Minister Ariel Sharon was away on a visit to India. Militants have frequently carried out terror attacks during Sharon's visits abroad — occasionally causing him to cut trips short. Israeli officials said a decision on whether or not Sharon would cut short his visit to India was not likely before morning.
Defense Minister Shaul Mofaz and Foreign Minister Silvan Shalom, the acting prime minister, were in consultation about the first attack when the second one happened.
The Tel Aviv blast occurred outside the Tzrifin military base at about 6 p.m. local time. Reports say the body of a suicide bomber was found, possibly that of a woman. Many of those waiting at the bus stop were Israeli soldiers.
Israeli security had been on high alert after the wounding of the spiritual leader and founder of the Hamas militant group this weekend.
Speaking on Sky News, Hamas spokesman Abdel Aziz Rantisi did not claim responsibility for the suicide attack, but said that it was carried out in response to Israeli "crimes."
"This operation, whoever is behind it, is a natural reaction for the bloody aggression against our people, the assassination of our people, the killing of our children, demolishing our houses, and terrorizing our innocent people," Rantisi said.
Israel had indicated earlier Tuesday it would be willing to work with Ahmed Qureia as the new Palestinian prime minister, despite his close ties with veteran leader Yasser Arafat, if he caried out the Palestinians' obligations under a U.S.-backed peace plan, including disarming militants.
"When we have a partner on the other side who is determined to take action against terrorism, then he will find Israel more than forthcoming," said Israeli spokesman Jonathan Peled.
However, Israelis don't expect that to happen, so the prospects for ending three years of conflict appear slim, reports CBS News Correspondent Robert Berger.
After the bombing, Israeli government spokesman Avi Pazner said "the responsibility is shared between the organization that carried out the atrocity and the Palestinian Authority that did nothing to prevent it, and Israel will react accordingly."
Qureia earlier had told Israel's Haaretz newspaper that he wants to achieve a comprehensive cease-fire between Israel and the Palestinians, not just the "hudna" that militant groups agreed to for two months this summer.
However, he is not optimistic about success if he doesn't have international support.
"I want to see the Americans, what kind of guarantees, what kind of support they will give," he said.
In the West Bank city of Hebron, three Palestinians, including a 12-year-old boy, were killed by shrapnel from an Israeli tank shell fired at a suspected militants' hideout, witnesses said. Army Radio reported that one of the adults killed was identified as Ahmed Bader, Hamas leader in the southern West Bank city.
Israeli troops surrounded a seven-story apartment building early Tuesday, apparently in search of wanted men from the Islamic militant group Hamas.
A gun battle erupted and troops blew up a car, witnesses said. Later, soldiers fired several tank shells at the building, witnesses said. Twelve-year-old Thaher Siyouri, who was watching the fighting with his family from the third-floor of a nearby building, was killed — according to hospital doctors by shrapnel from a tank shell that hit his head and neck.
Witnesses said the army sent two Palestinians into the building at one point, apparently to search it. Israel's Supreme Court has outlawed the practice of using Palestinian civilians as "human shields." The Israeli had no immediate comment on the report. In a similar raid in the West Bank city of Nablus on Friday, witnesses also reported that troops used human shields.
Qureia, the Palestinian parliament speaker and one of the key people who helped negotiate the 1993 Israeli-Palestinian Oslo accord, was tapped Sunday by Arafat to replace Abbas.
Qureia, also known as Abu Ala, warned that unless Israel lessens its hostility to Arafat and ends lethal airstrikes on militant leaders, he'd be doomed to failure.
It's not for Israel to say who will govern the Palestinians, he told Haaretz.
"I don't tell you whether [right-wing] ministers [Avigdor] Lieberman or [Effi] Eitam should sit in the government," said Qureia. "You must remember that Yasser Arafat is our chosen president, and he's the one who appointed me as the leader of the new government."
Raanan Gissin, a senior adviser to Ariel Sharon, said the Palestinian leadership must halt violence and choose the path of peace if it wants Israel to cooperate.
"The name doesn't matter here ... the policy matters, the strategy matters," Gissin told reporters traveling with Sharon, who is visiting India. "If they will be willing to participate in the process ... they can always call us, they know the phone number."
Sharon's aides, speaking on condition of anonymity, said Qureia could be a partner.