The blast came during a critical phase in Israel's peace talks with the Palestinians and Syria. Prime Minister Ehud Barak said last week that Israel was bracing for renewed attempts by Islamic militants to disrupt the talks.
There was no immediate claim of responsibility, but Israel's police minister, Shlomo Ben-Ami, said he suspected the Islamic Jihad, a small group of Palestinian militants opposed to Israeli-Palestinian peacemaking.
Barak said he had just finished warning a closed-door meeting of parliament members that attacks were likely in coming months when he learned of the explosion. He said Israel was "determined to act with all its might to crush terrorism."
"These are critical months and enemies of the peace whether in Lebanon, the Hizbollah or terrorist organisations in Damascus, or Iran, or in Judea and Samaria (the West Bank) and Gaza will try to carry out attacks in Israel, as we saw today, and also in Lebanon and abroad," Barak told Israel Radio.
"We are preparing. There is no 100 percent, but we are a strong nation...and no type of terrorism will break our spirit."
The bomb went off shortly after 11 a.m. local time in a small park near a bank in downtown Hadera, close to the city's marketplace.
"I heard a loud boom and people were shouting, 'Terror attack! Terror attack!'" said 40-year-old passer-by Moshe Senado, who witnessed the blast. "People were on the ground."
The pipe bomb was hidden in a trash can, and flung garbage and tree branches across the park and the adjacent road.
Shortly after the blast, a paramedic hastily bandaged the bloodied left hand of a man in his 60s, who appeared dazed as he sipped water from a plastic cup held by a passer-by. Another wounded man, also elderly, lay on the sidewalk before being lifted onto a stretcher.
Border police officers in flak jackets, armed with assault rifles, patrolled the area, as security forces and dogs searched for additional explosives.
Officials at Hadera's Hillel Yafe Hospital said they treated 21 people. One man was in moderate condition, and the others were lightly injured.
Deputy Defense Minister Ephraim Sneh said the attack was "part of the campaign against the peace process."
He said he thought Monday's assailants had also carried out two recent bombings in the nearby town of Netanya. A Nov. 8 explosion wounded 33 people, while a Dec. 24 blast caused no injuries. Sneh said he did not know the identity of the assailants.
Past bombings have usually been carried out by Hamas or Islamic Jihad, two militant groups based in the West Bank and Gaza Strip. Hadera is located 30 miles north of Tel Aviv, and is close to the est Bank.
Last week, the Israeli army arrested nearly two dozen Islamic Jihad activists in the West Bank amid reports that Israel had received new warnings that the group planned to carry out attacks.
In a newspaper interview last week, Barak said he was aware there were "enemies of the peace process," and suggested that attacks against Israeli targets could have a detrimental effect on talks.
"Naturally we are prepared to try to prevent this," he was quoted as saying in Friday's editions of the newspaper, Ma'ariv. "It should be remembered, there is no 100 percent guarantee, and this could affect the Syrian track, as well as the Palestinian track."
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