A Palestinian man has stabbed two Israelis in an east Jerusalem neighbourhood, killing an 60-year-old man and wounding a police officer in what authorities called a "terror incident."

Police shot and seriously wounded the assailant during the attack on Thursday.

Micky Rosenfeld, a police spokesman, said the incident took place when a pair of police officers stopped to question an Arab man during a patrol in the illegal Israeli settlement of Gilo, south of Jerusalem.

The man pulled out a knife and stabbed one of the officers, who managed to shoot the assailant.

Rosenfeld said the wounded attacker then grabbed a passer-by and stabbed
him before being overpowered.

The civilian, identified as an 60-year-old man, was dead upon arrival at the emergency room, Shoham Ruvio, spokeswoman at the city's Shaarei Tzedek hospital, said.

It is not known why officers stopped the man or why he produced a weapon.

The attack was the second in a month in Jerusalem and the fourth since July.

On September 22, a Palestinian drove his car into a group of soldiers at a
busy intersection, injuring 13 before he was shot dead.

In two separate incidents in July, Palestinians carried out attacks on city streets
using heavy construction machinery, killing three people and wounding several
others.

Gilo is built on West Bank land captured by Israel in 1967, and has been a target for attacks by Palestinian fighters in the past.