"It's very sad tonight in Jerusalem," Mayor Uri Lupolianski told Channel 2 TV. "Many people were killed in the heart of Jerusalem."
In Lebanon, Hezbollah's Al-Manar satellite TV station said a previously unknown group called the Martyrs of Imad Mughniyeh and Gaza was responsible for the attack. The claim could not immediately be verified. Mughniyeh, a Hezbollah commander, was killed in a car bomb in Syria last month. Hezbollah has blamed Israel for the assassination.
Hamas stopped just short of claiming responsibility for the Jerusalem shootings. "We bless the operation. It will not be the last," Hamas said in a statement sent to reporters by text message.
At mosques in Gaza City and the northern Gaza Strip, many residents performed prayers of thanksgiving — only performed in cases of great victory to thank God.
About 7,000 Gazans marched in the streets of Jebaliya, firing in the air in celebration, and visited homes of those killed and wounded in the last Israeli incursion. In the southern town of Rafah, residents distributed sweets to moving cars, and militants fired mortars in celebration.
Rice said she spoke with Israeli Foreign Minister Tzipi Livni to express U.S. condolences to the people of Israel and the families of the victims of the attack in Jerusalem.
"This barbarous act has no place among civilized peoples and shocks the conscience of all peace loving nations. There is no cause that could ever justify this action," she said.
At his West Bank headquarters, Abbas condemned the attack. "The president condemned all attacks that target civilians, whether they are Palestinian or Israeli," a statement said.
Abbas had briefly suspended talks to protest an Israeli offensive in Gaza that killed more than 120 Palestinians.
The attack came on the same day Egyptian officials were trying to mediate a truce between Palestinian militants and Israel. The proposal, backed by the U.S., would stop rocket fire on Israel in exchange for an end to Israeli attacks on militants and the resumption of trade and travel from Gaza.
An Israeli official confirmed that Israel is open to the idea of letting guards from Abbas' moderate Fatah movement oversee Gaza's borders — one of the main tenets of the truce idea. But the Israeli spoke before the shooting, and it was not immediately known whether his country's position would change.
The Egyptian proposal reflected a growing realization that Israel's current policy of blockade and military action has failed to weaken Hamas, which has proven its ability to disrupt a U.S.-sponsored drive to forge an Israeli-Palestinian peace deal by the end of the year.
Still, a deal between Hamas and Israel was far from certain, with Israel fearing the militants will use any lull to rearm and Hamas raising tough conditions, such as a demand for Israel to stop targeting militants in the West Bank as well as Gaza.
Other militant groups are also likely to disrupt any attempts to restore calm. Early Thursday, Palestinian militants set off a bomb on the Gaza border, blowing up an Israeli army jeep and killing a soldier. Late Thursday, Israel said it shot a group of militants trying to plant a bomb in the same area. Palestinian officials said four militants were wounded in an Israeli ground attack.
This was the first major attack by Palestinian militants on the Jewish side of Jerusalem in the last four years, although police and the military claimed to have foiled many attempts.
Between 2001 and 2004, at the height of Palestinian-Israeli fighting, Jerusalem was a frequent target of Palestinian attacks, including suicide bombings on buses.