Israeli police say at least nine people, including a baby, have been killed and 35 injured after an apparent suicide bomber set off an explosion in a Jewish neighborhood of Jerusalem.

The powerful explosion occurred in the Ultra-Orthodox Jewish neighborhood of Mea Shearim in West Jerusalem.

The thunderous blast could be heard throughout the city and sent flames leaping through the air from a car that caught fire near the scene of the explosion.

It came as residents were leaving synagogues and returning to the streets at the end of the Jewish Sabbath.

Ultra-religious Jews picked through the debris for body parts for burial and a toddler's red leather shoe lay abandoned on the ground.

The neighborhood where the explosion occurred is just across a main road from Palestinian communities in East Jerusalem.

Police chief Mickey Levy said an apparent suicide bomber approached a group of people and set off the explosion.

The Palestinian Authority released a statement condemning the attack, but criticizing the Israeli government for what it called the "policy of aggression against the Palestinian people."

Despite the condemnation, the Al-Aqsa Martyrs Brigades, a group linked to Palestinian leader Yasser Arafat's Fatah faction, claimed responsibility for the bombing.

As news of the explosion spread to the West Bank, Palestinians took to the streets to celebrate.

The blast came hours after Israeli forces withdrew from the Jenin refugee camp in the West Bank but continued to operate inside the Balata camp, near Nablus.

Palestinians have expressed outrage at Israel's military incursions into the camps and have vowed revenge.

Israel says it raided the Palestinian refugee camps because they have become strongholds for militants.

The army says in the Balata camp soldiers found equipment to make explosive devices and a factory for building Qassam rockets, a relatively crude homemade missile.

The Israeli raids marked the first time the army has sent ground troops into refugee camps during more than 17-months of conflict.

Palestinian officials say all security meetings with the Israelis have been suspended because of the incursions.

So far more than 1,000 Palestinians and nearly 300 Israelis have died since the uprising against Israeli occupation began in September 2000.