The attack took place hours before the swearing in of the new Israeli parliament following last month's election won by the centrist Kadima party of Acting Prime Minister Ehud Olmert.

The blast struck next to a fast food stand at around 1:45 pm (1045 GMT) in the southern Neveh Sha'anan district, close to the site of Tel Aviv's old bus station. The area has been the scene of several previous attacks, including one in January.

The attack -- the deadliest since a suicide bombing in August 2004 -- was claimed by the Palestinian militant group Islamic Jihad, which has been behind all of the most recent bomb attacks in Israel.

Moderate Palestinian Authority president Mahmud Abbas condemned what he called an act of terrorism while Olmert vowed that Israel would react in the "necessary fashion".

The Palestinian militant group Hamas, which recently formed a new government following its upset victory in January elections, laid the blame at Israel's door, calling it a natural consequence of its "aggression".

But the White House said there could be "no excuse or justification" for what it described as a "despicable act of terror".

Medical sources said eight people were killed in the blast, plus the 16-year-old bomber who had been wearing an explosives vest. Three of the victims died of their wounds in hospital.

Bystanders near the scene of the attack vented their fury, with one shouting: "This is an embarrassment to the state of Israel. Where is the army? People are dying -- where is the response?"

Blood was spattered across the pavement while restaurant chairs were turned over and shoe boxes from a nearby stand were strewn across the street.

Steve Bar-Ner, a spokesman for the Magen David Adom ambulance service, said many of the casualties were foreign workers.

"The wounded were men and women, mostly middle-aged people and foreign workers," he said.

Witnesses told police they had seen a blue vehicle fleeing the scene of the attack seconds before the explosion occurred. Police helicopters were searching for the vehicle, which they suspect dropped off the bomber.

"I saw a young man opening a bag at the entrance to the restaurant where a security guard was standing, the explosion happened a second later," said bystander Mussa al-Zidat.

The area has been the target of several suicide attacks in recent years, including the last such bombing in Israel on January 19 which left around 15 people wounded.

A spokesman for Islamic Jihad told AFP's offices in the West Bank town of Ramallah that it was behind the latest bombing.

The attack was a "response to the Israeli massacres and siege imposed on our people," the caller said on condition of anonymity.