The explosion occured in front of a bus stop near the Assaf Harofeh hospital close to the Tzrifin military base, local media are reporting.
The Tzrifin camp is one of the largest army bases in central Israel and the bus stop is frequently used by soldiers.
Medical sources are quoted as saying about 30 were injured, 15 of them seriously.
Israeli police have described the explosion as a “terrorist attack” and say the bomber may have been a woman.
A statement from Prime Minister Ariel Sharon, who is in New Delhi on an official visit visit to India, blamed the Palestinian Authority for the attack.
"This attack further indicates that the Palestinian Authority is doing nothing to rein in the Palestinian infrastructure of terror," it said. The Israeli government routinely holds the PA responsible for attacks by any Palestinian resistance groups.
The Palestinian resistance group Hamas had warned that it would retaliate for a recent wave of killings of its activists and civilians by the Israel.
"This is the result of what Sharon has done," said Usama Hamdan, a Hamas spokesman in Lebanon. "He destroyed the peace plan and he has no one else to blame for this attack."
"These attacks are likely to continue until Sharon realises he must stop the assassinations and the killings of Palestinians," he told Aljazeera.
The Tel Aviv bombing comes three days after a failed Israeli assassination attempt against the spiritual leader of the Palestinian resistance group Hamas, Shaikh Ahmad Yasin.
The blast also comes hours after an Israel attack on a block of flats in the West Bank town of Hebron, which left four Palestinians dead, including one 13-year-old boy.