Israeli police say there's been a bomb attack on a busy market in central Jerusalem, killing at least two people and injuring a number of others.

Police suspect the explosion was caused by a car bomb near one of the entrances to the Mahane Yehuda fruit and vegetable market, which was packed with shoppers at the time.

The market has been the site of previous attacks involving Islamic militants, but no group has so far admitted carrying out this one.

The explosion comes at another critical juncture in the peace process, with the Israeli cabinet yet to ratify the interim peace deal brokered by the Americans last month.

The cabinet suspended debate after news of the explosion.

An official statement said it would reconvene shortly 0930 GMT to discuss what steps to take in view of the attack.