Prime Minister Ariel Sharon said the bombing was "a cruel and terrible attack which shows that the Palestinian Authority has yet to decide to act against terror".

The tense security situation led Defence Minister Binyamin Ben-Eliezer to call off a week-long visit to the United States.

During the visit, due to start on Wednesday, Mr Ben-Eliezer was due to meet the Secretary of State, Colin Powell, and UN Secretary General Kofi Annan.

The militant Islamic Jihad group claimed responsibility for the attack.

Israeli security forces have been on high alert following several attacks by militant Muslim groups since the beginning of the Palestinian intifada (uprising) last September.

Many right-wing Israelis wanted a much harsher military reply to the bombing than the shelling of the Palestinian checkpoints.

But Israeli sources say an American envoy pressed Israel to limit its response in return for a condemnation of the attack from the Palestinian Authority.

That condemnation came quickly after the bombing.

Police closed off the area, while explosives experts looked for more bombs

In addition, a BBC correspondent in Jerusalem says Mr Sharon did not want to launch a major military action at the start of the Maccabiah Games, an international Jewish sporting event which takes place in Israel once every four years and opened on Monday evening in Jerusalem.

A spokesman for Mr Sharon said Israel would continue to try to intercept militants before they carry out attacks - which our correspondent says often means killing known militants.

Islamic Jihad's statement said the attack, in which Nidal Shadouf, 20, had blown himself up in a crowd of people near the train station, was in retaliation for Israel's policy of assassinating Palestinian militants suspected of planning attacks on Israelis.

"We warn the leaders of the Zionist enemy against any further idiocy or aggression against our people, and assure them that there are tens of suicide bombers ready to blow themselves up at any moment, anywhere in our usurped homeland of Palestine," the statement warned.

Arafat is sitting somewhere and smiling... saying that you can talk with me, but I am hitting you

Israeli Minister Reuven Rivlin

Ambulances rushed to the scene of the blast and police closed off the area, while explosives experts looked for more bombs.

Police used helicopters to hunt for a green Opel car, which is believed to have dropped off the suicide bomber at the scene of the blast.

Witnesses said they saw a car draw up near the train station - a man got out, walked towards the station, and then blew himself up.

Within minutes of the news breaking, Israeli Communications Minister Reuven Rivlin said Palestinian leader Yasser Arafat was to blame for the attack.

"Arafat is sitting somewhere and smiling... saying that you can talk with me, but I am hitting you," Mr Rivlin told Israeli television.

The explosion followed a day of heavy clashes in the West Bank city of Hebron on Monday, in which several people were injured and Palestinian police posts were destroyed when Israeli tanks moved into the Palestinian controlled area of the city.