at least four people and injuring dozens of others, Israeli media and rescue workers said.
Police reportedly discovered a body which was thought to be that of an alleged suicide bomber.
Paramedics said dozens of shoppers were hurt in the blast in the Carmel Market, which was believed to have been carried out by Palestinian militants.
Hamas spokesman Sami Abu Zuhri, whose group has carried out dozens of suicide bombings, praised the blast as proof that "resistance is alive. Police said four people were killed, including the bomber.
They claimed the attacker packed at least 11 pounds of explosives, about half the amount normally used by suicide bombers, The Associated Press (AP) news agency reported.
A witness, who was identified only by his first name, Motti, explained he heard an explosion in the market. "I thought maybe fireworks, or a gas canister. Butthen I saw a store, completely destroyed. Goods fell to the ground. People ran away. I lost my glasses and my hat," AP qouted Motti as telling Israel Army Radio.
CHAOTIC SCENES
Israeli Television showed chaotic scenes as the injured were rushed to hospital. Paramedics treated dazed shoppers on the ground, amid vegetables strewn on the pavement.
Police initially blocked access to the market for fear of secondary explosions, and are searching waste bins for explosives, the British Broadcasting Cooperation (BBC) said.
Prime Minister Ariel Sharon was reportedly in parliament when he received a first report of the bombing. Palestinian Cabinet minister Saeb Erekat condemned the attack.
PALESTINIANS REACT
"We urge the international community to exert every possible effort to revive the peace process between Israelis and Palestinians, which is the only to break this vicious cycle of violence," he told reporters.
The latest explosion came a day after Prime Minister Sharon told his cabinet that Palestinian leader Yasser Arafat cannot be buried in Jerusalem, while affirming his pledge to let the ailing Palestinian leader return to the West Bank if he recovers.
Arafat is undergoing treatment and medical tests in a French hospital to determine the nature of the ailment that left him in serious condition. The Israeli government has accused Arafat of supporting terrorism against Israeli civilians, charges the Palestinian leader has denied.
The last major suicide attack on Israel came in August, when two bombs killed 16 people in the town of Beersheba.
