Israel has imposed a total closure on the West Bank and Gaza Strip after a suicide bomber killed four Israelis.
The deaths threaten to trigger a new wave of violence
The blast, near Tel Aviv, was the first Palestinian suicide bombing in Israel for more than two months.
Israeli defence and intelligence officials met on Friday to discuss a response. However no statement was expected from the meeting
Three Palestinian militants and two bystanders died in Gaza on Thursday in an Israeli missile attack on a car.
Palestinian Prime Minister Ahmed Qurei called for calm as Palestinian militants vowed to take revenge.
Funerals of those killed in both incidents were due to take place on Friday in Israel and Gaza, following one of the bloodiest days of Israeli-Palestinian violence in recent months.
After the latest suicide bombing, Israeli Defence Minister Shaul Mofaz ordered the borders sealed between Israel and the Palestinian territories - already under a tight blockade.
Israel eased travel restrictions only a day earlier to allow pilgrims to visit Bethlehem for Christmas.
Reuters news agency quoted an Israeli army spokeswoman as saying the army would decide on Friday how to allow the worshippers to leave the town.
Israeli Government spokesman Avi Pazner said Israel would take "all measures" necessary to ensure its security, but, he said, there was an urgent need to resume peace talks with the Palestinians.
"The present situation demonstrates clearly the danger from not having negotiations," he said.
Bus stop blast
Three women and a man were killed and at least 12 others were injured when a suicide bomber blew himself up at a bus stop at Geha, a major junction outside Tel Aviv.
The Popular Front for the Liberation of Palestine (PFLP) said it carried out the attack, which, it said, would be the first in a "series of retaliations".
It named the bomber as Said Hanani, 18, from the village
of Beit Furik, near the West Bank city of Nablus, the Associated Press news agency reported.
The bombing is the first such attack since a bomb at a restaurant in the northern Israeli city of Haifa killed 21 people in October, though Israeli officials say they have captured more than 20 potential suicide bombers trying to enter Israel since then.
The US denounced what it called a "wanton act of terror".
Palestinian Prime Minister Ahmed Qurei condemned the bombing and an Israeli air strike on Gaza just 45 minutes earlier.
"Regretting the continuation of the cycle of assassinations, liquidations and attacks against civilians on both sides, the prime minister calls for a stop to this bloody circle and the conclusion of a reciprocal cease fire," a cabinet statement said.
Call for revenge
Mekled Hameid, a commander of the radical Palestinian group Islamic Jihad, and two of his bodyguards, were among those killed in the Gaza air strike.
The Israeli defence minister said Mr Hameid was planning a "mega terror attack" in Gaza when he was killed.
Islamic Jihad vowed to retaliate for Mr Hameid's death.
"We promise the [Israeli] occupiers severe retaliation for the assassination crime... the Zionist occupation will pay dearly for the murder," the group said in a statement.
Israel has used helicopters to track and kill dozens of militants fighting in the three-year-old Palestinian uprising known as the intifada.