Many of those killed were women and children and on Thursday, residents of the troubled city began burying the dead.
Lieutenant-General Asad Durrani, the former head of Pakistan's Inter Service Intelligence (ISI), told Al Jazeera the current situation in the country was grim and that it could take years for the situation to be brought under control.
"American help in our efforts of counter- insurgency are very unhelpful because this alliance is a very unpopular one. The public are not in favour of America and Pakistan co-ordinating..."
Durrani said that rising civilian casualties were also eroding the support for the anti-government groups.
"The most dangerous category of groups are the so-called rogue elements, their agenda is neither Afghanistan-oriented nor Pakistan. They carry out certain acts and atrocities which makes the situation even more complex," he said.
Wajid Shamsul Hasan, Pakistan's high commissioner to the UK, told Al Jazeera: "The Taliban are losing the war, losing history. And while doing that they will kill as many as they would like to.
"But I can tell you, as our foreign minister said, we'll not buckle down. We fight them and we'll destroy them."
The attack came as Hillary Clinton, the US secretary of state, touched down in Islamabad for talks with government officials.
Speaking in the Pakistani capital, she expressed her support for the military's offensive against the Taliban and pledging continued US assistance.
|The blast hit a crowded market in the
old part of the city [AFP]
"These extremists are committed to destroying that which is dear to us, as much as they are committed to destroying that which is dear to you, and to all people," Clinton said.
"So this is our struggle as well, and we commend the Pakistani military for their courageous fight, and we commit to stand shoulder to shoulder with the Pakistani people in your fight for peace and security."
Imran Khan, Al Jazeera's correspondent in Islamabad, said officials had told him that a car drove into a narrow and packed market place before exploding.
"The bomb disposal squad are at the location and are looking for clues as to what type of explosive was used," he said.
Ban Ki-moon, the UN secretary general, condemned the "appalling bomb attack".
"I want to express my outrage at the loss of so many innocent lives," he told a news conference in New York.
The blast comes as Pakistan's military is fighting members of the TTP in the country's semi-autonomous tribal region of South Waziristan.
The military launched its offensive nearly two weeks ago, pitting about 30,000 Pakistani troops against an estimated 10 to 12,000 Taliban fighters in South Waziristan.
Tariq Azeem Khan, a Pakistani senator and a former minister of state for information, told Al Jazeera that the attack showed the Taliban were becoming "reckless" in their choice of targets.
"When they cannot get to the main targets because they are well guarded, they are doing these explosions all over the place - in the main shopping centres without any pre-determined targets.
"There's very little the government can do to try to protect every single shopping mall. It's a difficult task, but they are doing their best. Pakistan is paying a very high price at the moment.
Since the South Waziristan assault began, the military says it has killed at least 231 fighters, and lost 29 soldiers.
However, independent figures are impossible to come by as journalists and aid agencies are barred from the conflict zone.
More than 125,000 people have been registered as displaced by Pakistan's offensive since October 13, United Nations officials have said.
The UN High Commissioner for Refugees has said that humanitarian access to people in need remains the key challenge for agencies, given the volatile security environment in the displacement areas.
The military has given no figures for civilian casualties, but those fleeing say many people caught in the crossfire have been killed.