Tensions were heightened by the fact that the gunman, who killed eight students - most of them 15- and 16-year-olds - and wounded eight more in the library of the Jewish religious college on Thursday night local time, was an Israeli resident of east Jerusalem, with full access to the city.

The lone attacker walked in to the Mercav Harav Yeshiva in the heart of west Jerusalem just after 8.45pm. Neatly dressed, and wearing a coat that concealed a Kalashnikov automatic rifle and a weapons belt, he shot dead the security guard inside the opened front gate before walking into a first-floor library and opening fire.

As hundreds of medics, police and soldiers surrounded the four-storey building, seething crowds of students behind a barricade across the road chanted "Death to the Arabs" and "Where did they get the guns?"

No credible claim of responsibility for the attack had emerged by last night, but the Hamas movement in Gaza claimed the gunman had been "heroic" and warned of more terror to come. In central Gaza, crowds celebrated by firing guns in the air.

Earlier on Thursday, an Israeli soldier was killed and three wounded when their jeep was blown up on the eastern Gaza border. The militant group Islamic Jihad claimed responsibility for the blast.

Police and the Israeli secret service, Shin Bet, were investigating an alleged claim of responsibility for the Yeshiva attack by an unknown group called the "Martyrs of Imad Mughnieh". Mughnieh, a Hezbollah commander, was killed by a car bomb in Syria last month, in an attack blamed on Israel.

Hezbollah has never succeeded in carrying out a terror attack in Israel, but captured two Israeli soldiers and wounded three more near the border with Lebanon in July 2006. The Shia Lebanese militia had vowed to avenge Mughnieh's death.

US Secretary of State Condoleezza Rice, who this week persuaded Palestinian Authority President Mahmoud Abbas to resume peace negotiations, condemned the Jerusalem attack as an "act of terror and depravity".

US President George W. Bush said he had called Israeli Prime Minister Ehud Olmert to convey his condolences and told him the US "stands firmly with Israel in the face of this terrible attack".

Mr Abbas issued a statement condemning "all attacks that target civilians, whether they are Palestinian or Israeli".

UN Secretary-General Ban Ki-moon condemned what he called a "savage attack". But an emergency meeting of the UN Security Council failed to agree on a statement after Libya demanded support for a resolution condemning Israeli attacks on Gaza.

Israeli police last night banned men under 45 from attending Friday prayers at the al-Aqsa Mosque, Islam's third-holiest shrine, and riot police were on alert in the Arab east of the city.

A special police unit stood guard yesterday in front of the home of the suspected terrorist, flashing torch lights at any cars that approached.

Neighbours described the suspected gunman as "strange" but said there had been no signs of militancy in the street or the suburb, Jebel Mukaber, which is less than 5km from the centre of Jerusalem.

More than 80 students were gathered in the crowded library for religious studies when the gunman burst through the door, spraying automatic fire in all directions.

Some students jumped out of the window to avoid being shot during the 10-minute barrage, which ended when a student and former Israeli army officer shot the gunman twice in the head.

Israeli police last night announced they had found the car the gunman was believed to have used to travel to the school.

One of the first medics on the scene after the shooting, Yerach Tuccer, from the United Hatzalah of Israel volunteer group, said the inside of the college library was like a slaughterhouse.

"The most terrible thing was to see young guys lying on the ground still holding the Torah," he said. "They were dead."

The Mercav Harav Yeshiva is popular with Jewish West Bank settlers and is hailed by settler groups who live in Palestinian areas as one of the most important Zionist learning centres.

Outside the school, student, Ephraim Friedman, a settler from England said: "There were people running in all directions, people screaming from the balcony, innocent civilians. And they still don't understand why we go into Gaza to root out the terrorists who direct these attacks.

"Whenever we try to defend ourselves, the world screams."

The spate of terrorist attacks in Israel from 2001 to 2005 originated almost exclusively from the West Bank and Gaza. Israel has warned it would review its handling of the east Jerusalem Arabs, who live inside the security barrier and hold identity cards or citizenship, if attacks were launched from within its boundaries.

Only one other terrorist attack is thought to have been carried out by someone from east Jerusalem: the bombing of the Hebrew University in 2003. But up to a dozen Israeli Arabs have been convicted for aiding suicide bombers, mostly by driving them, sometimes unknowingly, to the scene of their attacks.