A car bomb rocked a Jewish area of Jerusalem on Thursday, two days after arch-hawk Ariel Sharon swept to power on a pledge to stamp out Palestinian violence.
"What happened today is another tragic event which demands we all unite to act with determination against terror," Sharon told reporters shortly after the bomb detonated, lightly hurting one person.
U.S. officials later condemned the bombing, which seemed sure to inflame Israeli-Palestinian tensions already running high after Sharon's election.
"It's another reminder of the need to create a just and lasting peace in the Middle East to bring an end to the cycle of violence," said White House spokesman Ari Fleischer.
Two previously unknown groups - the "Palestinian Popular Resistance Forces" and the "Popular Army Front" - claimed responsibility for the attack in separate statements.
Jerusalem police chief Miki Levi told Israeli television it was a "huge miracle" no one had been killed. "The amount of explosives in the bomb was very large," he said.
Ambulance workers said one woman had been slightly hurt and nine people were treated for shock after the blast in the ultra-Orthodox district of Mea Shearim near Arab East Jerusalem.
Likud party leader Sharon's most urgent challenges are to form a cohesive ruling alliance and to deal with the Palestinians against the backdrop of a four-month-old revolt in the West Bank and Gaza Strip in which at least 383 people have died.
In other violence, the Israeli army reported sporadic shooting in the Gaza Strip and said a soldier had been wounded lightly in a gunfight near a Jewish settlement there. Witnesses said one Palestinian had been lightly injured in the crossfire.
At least 318 Palestinians, 52 Israelis and 13 Israeli Arabs have been killed in the uprising, which erupted after Sharon's visit to a Muslim holy site in Jerusalem in September.
FIRST BUSH-ARAFAT CALL
U.S. President George W. Bush telephoned Yasser Arafat on Thursday for his first talk with the Palestinian president since taking office. The call was before the bomb blast. "The president reiterated our support for a just and lasting peace between Israel and the Palestinians," said Mary Ellen Countryman, a spokeswoman for the National Security Council.
"He urged Arafat to make every effort to help stop the violence and calm the situation," she said.
The official Palestinian news agency WAFA quoted Arafat's aide Nabil Abu Rdainah as saying Bush had called to discuss peace efforts, "especially after the change in Israel".
Bush, who congratulated Sharon in a call after his election victory, has called for calm, saying the United States wants to give the Israeli leader a chance to promote peace.
Sharon told reporters he had replied to a congratulatory message Arafat had sent him after the election.
"I said to him that Israel has an interest in carrying out peace talks and in advancing the peace process, but that this thing depends on a complete end to acts of terror," he said.
A senior Israeli political official said Sharon's letter also cited the leader's willingness to pursue peace talks on the basis of U.N. resolutions for resolving the 52-year-old conflict between the sides.
BARAK SAYS EARLIER PEACE IDEAS DO NOT BIND SHARONOutgoing Prime Minister Ehud Barak, who was trounced by Sharon in an election on Tuesday, said on Thursday that peace proposals his government made to the Palestinians did not place Sharon under any obligations.
Earlier on Thursday, Sharon's adviser Zalman Shoval stoked Palestinian fears on the future of peace talks by rejecting a call by the Palestinian Authority for negotiations to pick up "from the point they reached" under Barak.
"Everything that was spoken about or said...is not binding on Israel or any government," Shoval told Israel Radio.
His remarks drew an angry reply from Ahmed Abdel-Rahman, an aide to Arafat, who told Reuters they showed "a desire of the extremist camp to move the clock backwards...destroy peace accords and abort efforts to revive the peace process".
Barak had been reported to have offered the Palestinians more than 90 percent of the West Bank and compromises on sovereignty over Arab East Jerusalem.
Palestinian negotiator Saeb Erekat said much progress had been made during Barak's term on final-status issues - those at the core of the 52-year-old conflict such as Jerusalem, Jewish settlements, borders and Palestinian refugees.
"If the Israeli side in the new government thinks that we will start negotiations from point zero, this will be a strategic mistake that we will not accept," he said.
Sharon was due to begin coalition talks with Barak's centre-left Labour Party later in a bid to form a national unity government before a late March deadline for forming a coalition and passing the state budget, or facing a general election.
After his defeat, Barak said he would quit as Labour leader and resign from parliament once Sharon had formed a government.
Leading Labour party member Haim Ramon said the task of drafting a joint platform on making peace with Palestinians, on which Labour and Likud are deeply divided, might be impossible.
"I have many doubts we can reach a joint diplomatic platform, but I think we need to try," Ramon told Israel Radio.
Sharon, keen to defuse disquiet about his election, is sending envoys to Jordan, Egypt, the United States and Europe.