"We have counted eight dead and 35 wounded," an official of the service, equivalent to the Red Cross, told army radio.

Initial media reports said one or two "terrorists" entered the school and opened fire indiscriminately, killing and wounding students.

Public television said two Palestinians were killed when they attacked the school, Merkaz Harav Yeshiva, in the Kyriat Moshe neighbourhood, and that many people had been wounded.

The report added that an explosives belt had been recovered from the body of one of the Palestinians.

Police spokesman Micky Rosenfeld told CNN television that a number of explosive devices were found inside the building, but that the deaths were the result of gunfire.

There was no immediate claim for the attack, which took place in what is an Orthodox Jewish neighbourhood not far from Hebrew University.

Security services have been on alert for the past three weeks since Israel was blamed by Hezbollah for the assassination in Baghdad of one of its top commanders.

Hezbollah chief Hassan Nasrallah declared "open war" on Israel in a fiery speech at the funeral in Beirut of Imad Mughnieh.

Israel has denied any involvement in the assassination, but Nasrallah said that by killing Mughnieh, it had taken its battle with Hezbollah beyond Lebanon's borders and should therefore expect attacks anywhere.

Mughnieh, who was killed on February 12, was wanted for his suspected involvement in a string of anti-Jewish attacks. They including the 1992 bombing of the Israeli embassy in Buenos Aires, which killed 29 people, and the 1994 bombing of a Jewish community centre there that killed 85.

US State Department spokesman Sean McCormack described the threat as alarming, saying: "Hezbollah has a long record of carrying out violent acts, acts of terrorism around the globe."

At the time, the Haaretz newspaper quoted security sources as saying they expected Hezbollah to do something in the "immediate future" followed by a "showcase attack" in the medium term that would require greater planning and effort.

It said there could be a suicide bombing by Palestinians through groups funded by Hezbollah or attempts to kidnap Israelis abroad.

In the long run, it said the concern was that Hezbollah would target "high-value targets, such as embassies, a delegation travelling abroad or an aircraft."

Israel's counter-terrorist agency has urged citizens abroad to maintain a high level of alert and awareness and to avoid places known to be popular with Israelis.

Israel quickly tightened security at its embassies, consulates and foreign offices of the Jewish Agency, which deals with immigration.