The suicide bomber who struck in Jerusalem has been identified as a member of Islamic Jihad.
The bomb prematurely detonated killing him and injuring two bystanders near the David Citadel Hotel.
The group says 41-year-old Daoud Abu Sway was on his way to attack a security target inside the hotel. They claim due to "special circumstances" he decided to blow himself up outside.
Two Israeli Cabinet ministers, including Public Security Minister Uzi Landau, were in the hotel at the time.
Sway was an unemployed labourer from the West Bank village of Irtas, near Bethlehem.
Islamic Jihad said the attack came in response to two days of Israeli military strikes in the West Bank and the Gaza Strip that left two Palestinians dead and more than 100 injured.
Palestinian Cabinet Minister Ziad Abu Zayyad condemned the attack and said such bombings caused "great damage to the Palestinian national interest".
Palestinian security officials say they now have 151 suspected militants in custody, including members of Hamas, the Islamic Jihad group and a radical PLO faction.
After the blast in this morning, the city's mayor Mr Ehud Olmert said it was time to get tough.
"We have to get rid of Arafat, not physically eliminate him. The terrorism which he is behind will not make us bow down," he said.
AFP