Israeli forces kill Palestinian who murdered two people in Tel Aviv bar

Israeli security forces hunted down and killed a Palestinian man who opened fire into a crowded bar in central Tel Aviv, killing two and wounding over ten in an attack that caused scenes of panic in the heart of the bustling city.

It was the fourth deadly attack in Israel by Palestinians in three weeks and came at a time of heightened tensions around the start of the Islamic holy month of Ramadan.

Later in the day, thousands of Palestinians from the West Bank were set to enter Jerusalem for the first Friday prayers of Ramadan at the Al Aqsa Mosque.

It was not immediately clear whether Israel would proceed or alter its plan to allow Palestinian worshippers to enter Jerusalem.

Protests and clashes in the holy city during Ramadan last year eventually ignited an 11-day Gaza war.

"We will widen our actions against the wave of terror through offence, defence and intelligence," defence minister Benny Gantz said ahead of the meeting.

"The price that we will extract from the attackers and those who send them will be heavy."

Thursday's shooting took place in a crowded bar in Dizengoff Street, a central thoroughfare that has seen other attacks over the years.

Thursday night is the beginning of the Israeli weekend and the area was packed with people in bars and restaurants.

In videos spread on social media, dozens of terrified people were seen running through the streets as police searched for the attacker and ordered people to stay indoors.

Hundreds of Israeli police officers, canine units, and army special forces conducted a massive manhunt throughout the night across Tel Aviv, searching building by building through densely populated residential neighbourhoods.

Early on Friday, authorities said they found the attacker hiding near a mosque in Jaffa, an Arab neighbourhood in southern Tel Aviv, and killed him.

Israeli police chief Kobi Shabtai said his forces, the army and the Shin Bet security agency had spent a "difficult night" tracking down the assailant.

"We succeeded this morning, through intelligence and operational co-operation, to close the circle and to kill the terrorist in a shoot-out," he said.

The Shin Bet identified the attacker as Raad Hazem, a 28-year-old Palestinian man from Jenin in the occupied West Bank.

It indicated he had acted alone, saying he did not belong to an organised militant group and had no prior record.

It said he had entered Israel illegally without a permit.

The Jenin refugee camp was the scene of one of the deadliest battles of the second Palestinian intifada, or uprising.

In April 2002, Israeli forces fought Palestinian militants in the camp for nearly three weeks.

Some 23 Israeli soldiers and at least 52 Palestinians, including civilians, were killed, according to the United Nations.

The Israeli military frequently conducts arrest raids in Jenin, often coming under fire.