The Taliban have denied being behind this bombing, but the government blames them for a wave of attacks apparently launched in response to the army operation against their strongholds on the Afghan border.
The BBC's Syed Shoaib Hasan in Islamabad says that few people will take the Taliban's denial seriously and they remain the major suspects for the bombing - if only because few other groups would have a motive for carrying out such a devastating attack.
The blast tore through buildings in Peshawar's Peepal Mandi market street, destroying several - including a mosque - and leaving others on fire.
The market mostly sells products for women, and most of the dead were women and children.
"There was a huge blast. There was smoke and dust everywhere. I saw people dying and screaming on the road," eyewitness Mohammad Siddique told AFP news agency.
Crowds dug through rubble to rescue people.
'We will not buckle'
Medical staff appealed for people in Peshawar to give blood.
Some complained that the authorities were not prepared to deal with the aftermath of such a large attack.
"There were a lot of wounded people. We tried to help them but there were no ambulances so we took the victims on rickshaws and other vehicles," Muzamil Hussain told the Associated Press.
"There were no police. The police and government didn't help us, the police even opened fire on us."
Security has been stepped up across Pakistan, but the government still appears to be unable to stop the attacks, the BBC's Mark Dummett in Islamabad says.
Foreign Minister Shah Mahmoud Qureshi promised that the country's resolve would not be shaken by "such heinous crimes".
At a news conference in Islamabad with Mrs Clinton, he told potential militants: "We will not buckle, we will fight you. We will fight you because we want stability and peace in Pakistan."
Mrs Clinton is in Pakistan to discuss US concerns about the increasing numbers of militant attacks and the security of the country's nuclear weapons.
Hillary Clinton: "In recent weeks Pakistan has endured a barrage of attacks"
She condemned the "vicious and brutal" attack in Peshawar and said the fight against the Taliban was "not Pakistan's alone".
"Pakistan is in the midst of an ongoing struggle against tenacious and brutal extremist groups who kill innocent people and terrorise communities," she said.
"We commit to stand shoulder to shoulder with the Pakistani people in your fight for peace and security, we will give you the help that you need in order to achieve your goal."
Last week, Pakistan launched an offensive in South Waziristan, which is considered to be the main sanctuary for Islamic militants outside Afghanistan.
Correspondents say the Peshawar blasts will come as a violent reminder for the US of the difficult task it is facing in the fight against the Taliban, both in Pakistan and across the border in Afghanistan.
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