Saudi television showed images of the blast near a shopfront

A pedestrian reportedly threw a package bomb into a busy shopping area.

The US embassy in Saudi Arabia confirmed reports that one American was killed. The nationality of the other dead victim is not known, but unconfirmed reports say it is also American.

A hospital official in al-Khobar said the wounded were an American, a Briton and two Filipinos.

Al-Khobar is near the former military base at Dhahran, where American troops were stationed until 1996 when a bomb blast - blamed on Islamic extremists - killed 19 US servicemen.

Tensions high

But in a swift reaction, a White House spokesman said he believed the explosion was a local incident not aimed at Americans and ruled out links with the 11 September attacks on New York and Washington.

Nevertheless, the presence in Saudi Arabia of thousands of US and British airmen and their warplanes - who have been stationed in the country since the Gulf War 10 years ago - continues to irritate many Saudi Islamists.

Osama Bin Laden - prime suspect in the plane attacks on New York and Washington - and his supporters call them Christian invaders of holy Muslim soil.

Tensions have been high in the region following the 11 September attacks in the United States.

Washington accuses Bin Laden and has warned Afghanistan's Taleban rulers to hand him over or face the consequences.

The attack on the US base five years ago drove the American forces to relocate to the desert.

Nowadays their bases may be out of range of attack, but in the last 12 months, there have been a series of mysterious bombings in Saudi Arabia, all targeting Westerners.

Three British men were arrested in Saudi Arabia in connection with some of the bombings and were shown confessing on state-run TV.

Al-Khobar is a busy market town close to oilfields where many expatriates work.

Fourteen members of the dissident Saudi Hezbollah group have been indicted in the US for the 1996 attack on the US base.