The explosion occurred near a bus station outside the International Convention Center, which is a Jewish area in central al-Quds.
An Israeli woman critically wounded in the blast died of her injuries, Israel’s public radio reported, citing medical sources. Some of those injured are reported to be in critical condition.
Israeli officials say the blast was caused by an explosive device hidden near the bus station.
“(We believe) the device weighed about 1-2 kilos. It exploded in a small suitcase on the sidewalk next to the bus stop,” Internal Security Minister Yitzhak Aharonovitch told Israel’s Channel 2 television.
No group has yet claimed responsibility for the attack and no arrests had been made.
Israeli forces have closed the entrance to the city.
Israeli Prime Minister Benjamin Netanyahu has postponed his visit to Russia following the blast.