Terrorists blew up a bus on Tel Aviv's Shaul Hamelech Street around noon Wednesday.
A total of 23 people were injured the attack, according to police.
One person was severely injured, one moderately and one light to moderately, according to a spokesperson from the city's Ichilov Hospital. The remainder of the casualties were lightly injured or suffering shock.
None were in a life threatening condition, though two have been taken into surgery, the hospital spokesperson said.
Police confirmed that the explosion was a terrorist attack, although said it did not appear to be a suicide bombing and thus police were searching the area for additional explosive devises. The bus was on Dan's number 142 line.
Police arrested a suspect near the Ramat Gan diamond exchange, but he was later found not to be connected to the attack. Police believe at least one terrorist may still be at large in the area, armed with explosives.
Tel Aviv police had added additional officers in the city before this attack due to heightened state of alert in place in light of the IDF operation in Gaza and rocket attacks in recent days, Tel Aviv police chief Yoel Ohayon said at the scene of the terror attack.
He further called on the public to stay alert.
While it appeared the bomb was left on the bus and not the result of a suicide bombing, Ohayon said that at this point in time, "it is very difficult to say exactly what happened."
Palestinian media reports said the Fatah-linked Al-Aqsa Martyrs Brigade took responsibility for the attack, although that was unconfirmed.
Hamas spokesman Sami Abu Zuhri praised the bombing, but stopped short of claiming responsibility.
"Hamas blesses the attack in Tel Aviv and sees it as a natural response to the Israeli massacres... in Gaza," he told Reuters.
"Palestinian factions will resort to all means in order to protect our Palestinian civilians in the absence of a world effort to stop the Israeli aggression," Abu Zuhri said.
The attack came on the eighth day of IDF Operation Pillar of Defense in the Gaza Strip, which has seen hundreds of rockets fired into Israel, including four in the Tel Aviv area.
The last time a bomb blast hit Tel Aviv was in April 2006, when a Palestinian suicide bomber killed 11 people at a sandwich stand near the old central bus station.
Wednesday's attack took place as US Secretary of State Hillary Clinton was in Israel trying to calm tensions over Gaza. She was due to fly to Cairo later in the day for talks with Egyptian President Mohamed Morsi, who is spearheading ceasefire negotiations.