Witnesses said a child was among those hurt in the blast in the mainly Jewish west Jerusalem. Ambulances were seen streaming to the scene.
Israeli authorities have not yet confirmed the cause of the blast but the local police chief has said he suspects a resistance bomb attacker.
Within minutes of the blast hundreds of people surrounded the scene, hampering emergency rescue crews.
The explosion comes on the day Palestinian Prime Minister Mahmud Abbas was due to start two days of talks with resistance groups about the state of the troubled ceasefire with Israel.
Abbas was aiming to persuade groups such as Hamas and Islamic Jihad to stick with the truce, which the groups said was in danger of unravelling beacuse of continuing Israeli violations.