A powerful bomb blast has ripped through a bus in the northern Israeli city of Haifa, killing at least 15 people.
Police and rescue teams rushed to the scene of the blast
About 40 people were wounded, some of them seriously, in the explosion.
Israeli police said it was caused by a Palestinian suicide bomber, who also died.
Late on Wednesday, Israel launched a raid on the northern Gaza Strip, with tanks backed by helicopter gunships moving deep into the Jabaliya refugee camp next to Gaza City.
A 60-year-old Palestinian man and another unidentified Palestinian man were killed
during the attack. About a dozen other people were injured.
Prime Minister Ariel Sharon's security cabinet had met earlier in the evening to discuss responses to the suicide bombing.
The Haifa bus was reportedly packed with students from a nearby university when the blast happened at about 1415 local time (1215 GMT).
It is the first bomb attack in Israel since January, when 22 people were killed in a double suicide attack in Tel Aviv.
4 Aug, 2002, 9 killed and 50 wounded on bus travelling from Haifa to Safed
10 April, 2002, 8 killed, 22 injured in suicide attack on bus from Haifa to Jerusalem
31 March, 2002, 15 killed, more than 40 wounded in restaurant blast
9 Dec, 2001 Bomber explodes powerful bomb near bus stop at Checkpoint Junction
2 Dec, 2001: 15 killed, 40 injured after suicide bus blast
There was no immediate claim of responsibility for the latest attack, but Israeli Government spokesman Raanan Gissin said the blast showed the Palestinian Authority had taken no action to stop terrorism.
Mr Gissin said Israel had no choice but to continue its relentless campaign against such attacks.
US President George W Bush condemned the attack "in the strongest terms".
"The president stands strongly with the people of Israel in fighting terrorism, and his message to terrorists is that their efforts will not be successful," White House spokesman Ari Fleischer said.
A number of countries, including Britain and Russia, also condemned the attack and urged Israelis and Palestinians to break their cycle of violence and resume peace talks.
A spokesman for the Israeli ambulance service told the BBC that 12 people were confirmed dead, including the bomber.
Israeli police spokesman Gil Kleiman said that three more people later died in hospital of their wounds. He said that it was possible the death toll may rise further.
Reports say the N37 bus had stopped on the city's main Moriah Boulevard in the Carmelia district when it blew up.
Israeli media reported that the blast was caused by up to 60 kilograms (130 pounds) of explosives.
The driver of another bus travelling behind said he saw "the back of the bus fly into the air, and the windows blew out and a great cloud of dust covered the bus".
Television footage of the scene showed smoke rising from the burnt and mangled wreckage of the bus, which had lost its roof in the attack.
Haifa police chief Yaacov Borovsky said bodies and wreckage were strewn across the street.
Shop owner Ronen Levy said: "I suddenly heard a huge explosion and all the lights in my beauty parlour broke. I am still in shock."
Some casualties were treated at the scene while others were evacuated.
Haifa, a mixed Jewish-Arab city close to Israel's border with the West Bank, has been frequently targeted by militants since the Palestinian uprising, or intifada, began in 2000.
Palestinian Authority blamed
Mr Gissin blamed the Palestinian Authority for the attack, saying that it had taken "no action whatsoever to stop terrorism".
The Palestinian Authority has condemned the attack, and its cabinet minister Saeb Erekat rejected the Israeli "finger pointing that the Palestinian Authority is responsible".
Israeli security officials said they had prevented almost 100 attacks against Israeli targets since the start of this year.
The latest attack comes just days after Israeli Prime Minister Ariel Sharon formed a new right-wing coalition government, including ultra-nationalist parties opposed to a Palestinian state.
Shortly after the new cabinet was unveiled, Israel launched an operation targeting Palestinian militants in a refugee camp in Gaza, killing eight people, including a pregnant woman and a child.
The militant group Hamas and other Islamic militia had vowed revenge for the operation, although no one has yet claimed responsibility for the Haifa attack.
Abdel Aziz Rantisi, a spokesman for the group, praised the attack, saying "we are not going to give up in the face of daily killings" of Palestinians.