The incident unfolded shortly after a Palestinian stabbed and wounded an Israeli man in a Tel Aviv suburb. The alleged assailant was then kicked and beaten by passersby, amateur video distributed by police showed.
With the worst unrest in years in Israel and the Palestinian territories showing no signs of abating, Prime Minister Benjamin Netanyahu called a security cabinet meeting to discuss what police said would be new operational plans.
Officials said Israel's public security minister was considering whether to seal off Palestinian neighborhoods in East Jerusalem, home of many of the assailants of the past two weeks, from the rest of the city.
Minutes later, another Palestinian rammed his car into a bus stop in the center of Jerusalem, then got out and began stabbing pedestrians, killing one and wounding six, police said. They said the attacker had been "neutralized", without saying what this meant.
You May Also Like To Check Out: Video Shows Israeli Soldiers Shooting Terrified Palestinian Woman
The main Palestinian factions, including the Western-backed Fatah movement and the militant Hamas group, declared a "Day of Rage" on Tuesday across the West Bank, Gaza and East Jerusalem, accusing Israel of "escalating its crimes against our people" and carrying out "summary executions".
The leaders of Israel's Arab community called for a commercial strike in their towns and villages.
The now-daily stabbings have raised speculation that Palestinians could be embarking on another uprising or Intifada, reflecting a new generation's frustrations over their veteran leadership's failure to achieve statehood.
Palestinians also see increasing visits over the past year by Jewish groups and right-wing lawmakers to the al-Aqsa plaza, revered by Jews as the site of two destroyed biblical temples and Judaism's holiest place, as eroding Muslim religious control of the compound.
Netanyahu has said repeatedly that he will not allow any change to the status quo under which Jews are allowed to visit the site but non-Muslim prayer is banned, but his assurances have done little to quell alarm among Muslims across the region.
Seven Israelis and 27 Palestinians, including nine alleged attackers and eight children, have died in almost two weeks of street attacks and security crackdowns.
Recommended: Should Israel Be On ‘List of Shame?' Find Out Now