A Palestinian man killed at least three people and wounded 30 more when he rammed a bulldozer into a bus and cars in central Jerusalem before being shot dead, medics and police said Wednesday.

"The terrorist is an Arab who lives in east Jerusalem and is known by our services for his criminal activities," Rosenfeld told AFP.

A little-known group calling itself the Imad Mughnieh unit of the Brigades of the Liberators of the Galilee claimed responsibility in a phone call

"I saw the tractor ramming a car on Jaffa street, people started to shout and I came out the bank and I saw the truck. I shot the driver and the truck stopped," said Shmuel Aboukiya, a security guard at a nearby bank.

'We have four people dead so far, including the driver of the earthmover, and 45 wounded, three of them seriously,' said Yeroham Mendola, a spokeswoman for the Magen David Adom emergency services.

'There is a large police force in the village trying to locate anyone linked to the incident,' Mr Franco said.