The gunman started spraying bullets at the public transport bus and people outside the vehicle in a pre-dawn attack at the Tomb of David bus stop, recounted bus driver Daniel Kanievsky.

The attack took place not far from the Western Wall, the holiest prayer site for Jews.

"I was coming from the Western Wall. The bus was full of passengers," he later told reporters in front of his bullet-riddled vehicle.

"I stopped at the station of the Tomb of David. At this moment, the shooting started. Two people outside I see falling, two inside were bleeding."

Israel's emergency medical services, the Magen David Adom (MDA), quickly arrived at the scene to treat the wounded.

"We were on the scene very quickly," its medics said in a statement.

"On Ma'ale Hashalom Street we saw a passenger bus ... in the middle of the road. Bystanders called us to treat two males around 30 years old who were on the bus with gunshot wounds."

MDA spokesperson Zaki Heller initially said six men and one woman were wounded, with all seven "fully conscious", before police raised the wounded toll to eight.

'Pay a price'

Israeli Prime Minister Yair Lapid said after the attack that police, the army and other security services "are working to apprehend the terrorist and will not cease until he is caught".

The Palestinian Islamist group Hamas, which controls the Gaza Strip, hailed a "heroic operation" without claiming responsibility for the attack.

"Our people will continue to resist and fight the occupier by all means," it said in a statement.

The shooting came a week after the end of a three-day conflict between Israel and Islamic Jihad militants in the densely populated Palestinian enclave of Gaza.

At least 49 Palestinians, including Islamic Jihad fighters and a number of children, died in the violence which ended last Sunday after Egypt negotiated a truce.

Since March, 19 people have been killed in attacks, mostly Israeli civilians, Israel claims. Three Israeli Arab attackers were also killed.

In the aftermath of those attacks, Israeli security forces stepped up raids in the occupied West Bank.

More than 50 Palestinians have been killed, including fighters and civilians, in operations and incidents in the West Bank since then.

*This story was edited by Ahram Online