Thursday's attack destroyed the vehicle shortly before nine in the morning, exploding close to Prime Minister Ariel Sharon's official residence.

The Magen David Adom rescue service said about 40 people were injured as shrapnel and shattered glass tore the bus apart.

Security forces have said the bomber was among the dead in what is the first attack since the 25 December explosions near Tel Aviv.

The bomb may have been intended to halt the exchange of hundreds of Palestinian prisoners in a fragile agreement between Israel and the Lebanese guerrilla movement, Hizb Allah.

However, a senior Israeli official has told journalists the exchange will still take place.

Sharon's chief spokesman Raanan Gissin said: "Israel will respect the agreements which have been concluded and the exchange of prisoners will take its course."