A suicide bomber has killed himself and two Israelis - including a small child - in the town of Petah Tikva, near Tel Aviv.

The bomber struck as Israeli forces stepped up raids on Palestinian-controlled areas in the West Bank as part of the army's attempt to stop Palestinian militant attacks.

Palestinian leader Yasser Arafat condemned the bombing, saying it would only harm their cause.

However, the al-Aqsa Martyrs Brigades, an armed offshoot of Mr Arafat's Fatah group, claimed responsibility for the attack.

The bomber detonated his explosives outside an ice cream parlour and coffee shop at the entrance to a shopping centre in the Em Hamoshavot district.

Police and hospital officials said a woman and a two-year-old girl were killed. About 20 people were wounded including several infants.

Shocking scenes

A bloodstained pram lay on its side after the blast amid a tangle of white plastic chairs. The cafe's awning was torn and splattered with blood.

Taxi driver Haim Hayak, 43, was standing near the coffee shop when the bomb was detonated.

"I ran here. I saw children screaming. There was a lot of blood. There were children on the floor," he said.

Witnesses said a crowd gathered around the floodlit area chanting: "Death to the Arabs".

We will not stop our operations as long as the occupation continues in our land

Al-Aqsa Martyrs Brigades statement

In contrast, Palestinian gunmen fired into the air in celebration in the Balata refugee camp near Nablus in the West Bank, saying the operation was in retaliation for Israel's killing of al-Aqsa leader Mahmoud Titi in shelling last week.

Palestinian sources named the bomber as his 18-year-old nephew Jihad Titi.

Chief Palestinian negotiator Saeb Erakat said: "The leadership asks Palestinian people and all Palestinian groups to declare their clear position against this kind of operation. It gives the Israeli army reasons to continue their aggression and occupation."

Earlier on Monday Israeli police defused what they said was a 10-kilogram bomb in Jerusalem.

Militants 'regrouping'

Israel's Chief of Staff, Shaul Mofaz, warned on Sunday that Palestinian militants were now regrouping after Israel's massive offensive across the West Bank in April.

Israeli forces swept into Bethlehem on Monday morning, the second such incursion in two days, and sealed off the town and placed it under curfew.

Dozens of Palestinians were seized in house-to-house searches, including the local head of al-Aqsa Martyrs Brigades.

Troops blocked access to Bethlehem's Church of the Nativity to stop another stand-off at the shrine with Palestinians.

Shoppers react with horror to the blast

Israeli forces continued to surround Qalqilya, which has also been subject to incursions during the past few days.

Soldiers left the town of Tulkarm just before the suicide bombing in Petah Tikva which is about 30 kilometres away.

Israeli troops also entered the outskirts of Ramallah in the West Bank, blocking off a road and searching buildings, Palestinians said. Military sources confirmed that soldiers were operating in the area.

General Mofaz warned that Israel might mount more intensive raids if suicide bombings did not stop.