The time bomb went off at the Intercontinental Hotel in a busy area near the city centre. A man was also injured in the blast.

Police said a telephone call to local media shortly before the explosion had given a warning on behalf of a group calling itself the Revolutionary Cells.

The AFP news agency reported that police believed the attack was as a protest against Nato's bombing in Yugoslavia.

Last December the group claimed responsibility for an attack on a Barclays Bank branch and a former American Express office, which it said was "an act of resistance" against Nato.

The group has admitted responsibility for several other attacks on state buildings and foreign banks since it formed in 1996.

Eve of conference

The two victims, both Greek nationals, were in the hotel restaurant when the bomb exploded.

A Greek Government spokesman condemned the "murderous act of terrorism".

The explosion occurred on the eve of an annual business conference held at the hotel by the London-based Economist magazine.

European Commission Vice-President Leon Brittain was due to attend the conference on Wednesday with other leading European officials, bankers and government ministers.