It was the biggest suicide attack in Jerusalem since mid-June

The blast took place at about 2100 (1800GMT) in an ultra-Orthodox area - Shmuel Hanavi - near the old dividing line between east and west Jerusalem.

The militant Palestinian groups Hamas and Islamic Jihad both said they carried out the attack.

The Israeli Government responded by cutting all contact with the Palestinian leadership and put on hold all talk of transferring security control in West Bank towns and cities.

Israel is also reimposing a total closure on the West Bank and Gaza, allowing no Palestinians in or out.

Witnesses describe carnage In pictures: Jerusalem blast

The BBC's Chris Morris in Jerusalem says even hardened Israeli ambulance workers were stunned by the appalling injuries caused by the blast.

First Islamic Jihad said it was behind the attack. It had vowed revenge last week after Israeli troops killed one of its leaders in the West Bank town of Hebron.

But later, a videotape released in Hebron showed a man who identified himself as a member of Hamas, and announced he would carry out the suicide bombing.

There are reports that the bomber was disguised as an ultra-Orthodox Jew when he carried out the attack.

Condemnation

Palestinian Prime Minister Mahmoud Abbas, who is committed to the US-backed peace plan known as the roadmap, has decided to break off contacts with Hamas and Islamic Jihad, Palestinian officials say.

Mr Abbas - also known as Abu Mazen - denounced the bombing as "a horrible act which does not serve the interest of the Palestinian people at all".

A video showed a Hamas supporter claiming responsibility

At the end of June the main Palestinian militant groups declared a ceasefire, after coming under international pressure to support the roadmap negotiations.

US President George W Bush said the Palestinian Authority needed to move to "dismantle and destroy" militant groups and that the United States was prepared to help.

Israeli-Palestinian violence had subsided significantly since the militants' ceasefire declaration.

Tuesday's explosion was the most deadly in Jerusalem since a bus bombing killed at least 17 people in mid-June.

The BBC's James Reynolds in Jerusalem says that 20 to 30 ambulances arrived on the scene within minutes.

Rescuers said the dead included as many as three children.

The bus destroyed in the blast had been heading back from the Western Wall, Judaism's holiest site.

A second bus passing nearby at the time was also badly damaged, with windows blown out. Rescuers had to use blow torches to reach some of the wounded.

Withdrawal talks

Palestinian and Israeli negotiators had been close to reaching an agreement on the future of the West Bank towns of Qalqilya and Jericho in the hours before the bombing.

Israel appeared to be on the verge of handing over the towns to Palestinian control, backing down on a demand that the Palestinian Authority arrest wanted militants in the towns.

But weekend talks on a military withdrawal from the towns failed to satisfy Israeli security concerns, the main one being how the Palestinian Authority could guarantee that militants will not launch future attacks from there.