A security lockdown has been placed across Jerusalem as crowds of mourners gathered for the funerals of eight students killed by an armed Palestinian man.
The gunman, identified as an East Jerusalem resident, was shot dead after opening fire with an automatic weapon at students in the library of the Merkaz Harav Jewish religious school.
There has been no credible claim of responsibility and the motive for Thursday's attack remains unclear.
In Gaza, where recent Isaeli military operations have left more than 120 Palestinians dead, Hamas praised the "heroic operation" while thousands of people poured onto the streets to celebrate.
Israel deployed thousands of police in Jerusalem on Friday, spokesman Micky Rosenfeld said.
Police were also limiting Palestinian access to the al-Aqsa mosque due to fears violence could break out in the Old City as both Jews and Muslims gathered for prayers.
The Israeli military sealed off the occupied West Bank until Saturday night, AFP news agency reported, quoting a military spokeswoman.
Thursday's shooting in Jerusalem could further complicate US-backed efforts to broker a deal for the creation of Palestine by the end of 2008.
It followed a visit to the region by Condoleezza Rice, the US secretary of state, who persuaded Mahmoud Abbas, the Palestinian president, to resume peace talks he suspended over Israel's attacks on Gaza.
Washington has tried to pressure Israel to ease some travel restrictions on Palestinians in the occupied West Bank, but the attack makes that far less likely to happen soon.
Abbas condemned the Jerusalem attack.
Saeb Erekat, an Abbas aide, said: "President Mahmoud Abbas condemns the attack in Jerusalem that claimed the lives of many Israelis and he reiterated his condemnation of all attacks that target civilians, whether they are Palestinians or Israelis."
Mark Regev, spokesman for Ehud Olmert, the Israeli prime minister, said Abbas must go further and rein in Palestinian armed groups.
He said: "They have clear obligations to act against terrorist cells, to act against the infrastructure of terrorism.
"While we understand they have limitations on their capabilities today, we believe that they could be doing much more and it is incumbent upon them to do so."
Israel has yet to meet its own commitments under a long-stalled peace "road map" to halt all settlement activity and to remove Jewish outposts in the West Bank.
A spokesman for the Israeli foreign ministry said that those responsible for the shooting were "killing chances for peace" and vowed to "continue our fight against terrorists".
But Arye Mekel said that Israel would carry on with the negotiations.
George Bush, the US president and Israel's main ally, led the global chorus of outrage at what he called a "barbaric and vicious" but the UN Security Council failed to agree on a condemnation after an emergency meeting.
The US and Israel blamed Libya for the failure to pass a UN resolution against the attack, which said it wanted to link any condemnation of the shooting to its own resolution pressing for censure of Israel over its deadly land and air assault on the Gaza Strip last week.
Al Jazeera's John Terrett, reporting from the UN, said up to four countries wanted to link the Gaza and Jerusalem violence and the meeting broke down when the American delegation left over that.
Dan Gillerman, Israel's ambassador to the UN, then told reporters outside that this is what you got when the security council was "infiltrated by terrorists", saying that Libya should not be on the council.
"Most members [of the council] wanted to condemn [the attack] but Libya blocked it," he said.
Ibrahim Dabbashi, Libya's envoy, hit back, saying his country did not need a certificate of good conduct from what he said was the Israeli "terrorist regime".
Ban Ki-moon, the UN secretary-general, however, decried the assault.
A statement issued by Ban's spokesperson said: "The secretary-general condemns in the strongest terms today's savage attack on a Jewish seminary in west Jerusalem, and the deliberate killing and injuring of civilians."
The attacked seminary, located in the Kyriat Moshe neighbourhood, is a well-known centre for Jewish studies linked to those leading the Jewish settler movement in the occupied West Bank.
Rosenfeld, the Israeli police spokesman, said the attacker entered through the seminary's main gate and entered the library.
He carried an assault rifle and pistol, and used both weapons in the attack, spraying dozens of bullets.
At least six empty bullet clips were found on the floor, Rosenfeld said.
Israeli defence officials said the attacker came from east Jerusalem, the predominantly Arab section of the city which Israel captured and occupied in the 1967 Middle East war.
In contrast to Palestinians in the West Bank, those in Jerusalem have Israeli identification cards, allowing them relatively free movement inside Israel.
The seminary serves some 400 high school students and young Israeli soldiers, many of whom carry arms.
While not claiming responsibility for the attack, Sami Abu Zuhri, a spokesman for Hamas, said "this heroic attack in Jerusalem is a normal response to the crimes of the occupier and its murder of civilians".
Taher al-Nunu, another spokesman, blamed the attack on Olmert and Ehud Barak, the defence minister.
"We have warned before about the responsibility of the escalation in Gaza and warned of Palestinian anger," he said
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